Life Insurance for Tax and Estate Planning

Life Insurance for Tax and Estate Planning

A few months ago I was in Palm Springs for a reward trip/insurance conference. It was a lot of fun – some friends and I toured the San Andreas fault! IMG_5321It was also very educational. We learned some advanced tax and estate planning strategies using life insurance.

Did you know that life insurance is a great tool for people to help with tax and estate planning? These people don’t need life insurance, but use it to enhance their finances. Here are two examples of real cases out of Ontario.

The first case was a woman who had a high value investment portfolio with significant capital gains. On her death, the investments would be ‘deemed’ to be sold, and the government would get their taxes on those capital gains. In her case, the million dollars of gains would be about taxed about $460,000! To avoid this future tax, she, in her will, donated her investments to her favourite charity upon death. If shares listed on a designated stock exchange (like those in her portfolio) are donated to charity, you are eligible for an inclusion rate of zero on any capital gains realized on such gifts, so because of her donation, the estate was saved $460,000 in taxes.

At the same time as creating her will, the woman got life insurance to replace the value of the donated $1 million investments in her estate. The cost of the insurance was significantly lower than the $460,000 of taxes, and her estate was preserved. She also got a large tax deduction on her gift to the charity which was used to further reduce any taxes upon her death.

Another case was a physician couple out of Ontario with high combined income $1.4 million/year. In this case they each got large insurance policies to cover any loss of income should either pass away. But more importantly they could put some of their income into the tax sheltered investment component of their insurance Policies. The money grows at 6.5% per year and is completely tax sheltered. They are able to avoid significant taxes on their death as that money is paid out by insurance, and does not increase the value of the estate. Also, some of the money/gains put into the insurance contract are available to them prior to their death, so it can be accessed for emergencies.

For further ideas, please contact me.


This article was prepared solely by Laura Chanin who is a registered representative of HollisWealthTM (a division of Scotia Capital Inc., a member of the Canadian Investor Protection Fund and the Investment Industry Regulatory Organization of Canada). The views and opinions, including any recommendations, expressed in this article are those of Laura Chanin alone and not those of HollisWealth. TM Trademark of The Bank of Nova Scotia, used under license. Insurance products provided by HollisWealth are provided through HollisWealth Insurance Agency Ltd.