What do you think about when you ask yourself how other people you know build their wealth?
Do you think about real estate? Maybe tech stocks or your brilliant Financial Advisor? Some will go right to the last article they read, about the most recent tech CEO or Founder, who just sold for hundreds of millions of dollars, and in some cases, billions.
No matter where your mind goes naturally, there are incredible amounts of ways to build wealth, but very few ways to properly protect it. If you talk to any of the wealthiest people you know, I am confident that many, if not all of them, will say something like, “building my wealth was the easy part, but protecting it was much tougher”.
Protecting it from what is a natural question. What about tax erosion, bad investments, market volatility, or even something as obvious and natural as unexpected death or illness.
That’s why many of the wealthiest people in the world have learned to take advantage of properly structured, cash value life insurance.
The two words “Life Insurance” do not exactly imply a sexy wealth creation tool, but the truth is that the benefits provided by this long-standing financial instrument, are nothing short of special.
Let’s focus on just three truly unique benefits of tax advantaged, cash value life insurance:
- Tax Free Growth: Whether your policy is owned personally, by a Holdco or even a family trust, the steady, predictable growth of your cash value inside your life insurance policy grows completely tax free.
- Tax Free Access: How many financial products in Canada offer you both tax free growth and tax-free access? Only two, your TFSA and principal residence. That is elite company from a tax planning perspective. Tax free, predictable retirement income is an absolute priority for all Canadians during retirement.
- Capital Preservation: Market volatility has negatively affected every Canadian at least once in their life, and as recently as the last three months. One of the most unique features of a cash value life insurance product is that each year on the anniversary of your policy, your cash value vests, which means it cannot decrease by even one dollar, regardless of outside market volatility. That means that each year you create a new capital ground floor with the funds held within your policy.
Those are just three benefits to using life insurance as a part of your wealth creation strategy, and I’m not saying this is the only strategy to explore. This vehicle is best used and most effective when combined with other wealth building models.
Although this form of life insurance is not a fit for everyone, depending on your cash flow, asset base or even time in life, it is a vehicle that can solve many problems for you and your family. In the very least, it’s worth exploring if you think tax savings and guarantees are sexy.
