How Some Life Insurance Makes You Money Even If You Live A Long Time

If you are indifferent to the amount on the cheque you write for premium, no one will choose term life insurance.

Why is that? Because life insurance is a valuable investment tool as well as protecting survivors from an untimely death.

Three thoughts:

Malcolm Forbes, longtime publisher of Forbes magazine, was able to get input from anyone in the economic and finance world. On his death, life insurers paid nearly $70 million to his estate. His premiums were around $4 million a year.

“Life insurance is an efficient way to transfer wealth to your heirs.”

Jonathan Chevreau, columnist- The Financial Post.

“In the ongoing war between taxpayer and tax collector, life insurance has become an unexpected ally of the oppressed.”

Woody Allen, actor, producer, director, observer of life.

 “Next to being shot at and missed, nothing beats a good tax return”

Do you understand what Life Insurance can do for you?

Probably not. People should recognize an important aspect of their life. Wealthy people die with money in their estate. As with Malcolm Forbes, they should assess how they intend to transfer assets to their heirs. They should pay particular attention to how they will deal with the demand for liquid assets in their estate. You can play the numbers as you wish, but an objective assessment of the ways to get cash into your estate will place Life Insurance at the top of the list. There are only four ways. You should know how they compare.

Do you understand income tax management?

One of the methods for improving after tax yield is income splitting. That involves transferring income from a high rate payer to a lower rate payer. Have you noticed that life insurance companies are a low rate tax payer in respect to amounts supporting the cash value of their products owned by their customers? Again, probably not.  Should you investigate how it might improve your investment returns, after tax consideration? Probably you should.

For the skeptics.

Do not accept a tactic like life insurance without fitting it to your own resources, and needs. This example assumes someone has $1 million invested in bonds with maturities beyond life expectancy, at 2.5%, is married,  both are in good health, and aged 70. They expect to have no concerns about estate liquidity until the second death. The expectation of life for at least one survivor is 23 years. They intend to spend the after tax income derived from their bonds while living.

An example provided by a major insurer.

Pick a method to compare. I have selected after-tax rate of return to the second death. You may have another that is more appropriate in your particular circumstances.

Under the conditions above, lifestyle will not be affected by paying premium of $33,380 for 20 years and at least one living to age 100.

Rate of return on the insurance investment depends on when the second of them dies. It is the after tax return in addition to the 1.25% after taxes they consumed annually.

At 10 years – 17.79%      Total yield after tax – 19.04%

At 15 years –   8.17%      Total Yield after tax – 9.42%

At 20 years –  4.24%       Total Yield after tax – 5.49%

At 25 years –  3.22%       Total Yield after tax – 4.47%

Another comparison has cash gains to the estate of from $716,000 at year 10 to $475,000 at year 25.

The extra yield in the early years comes nearly completely from the insurance effect. In the later years it is almost entirely the tax effect.

All of these cases are made to measure.

There is no cookie cutter solution.

The client’s resources, needs, obligations, hopes, fears, and expectations all come into play.

There are other ways to arrange this format and there are other products that are sometimes a better choice. Every particular situation depends on circumstances and the intentions of the client. If I did ten of them I doubt any two would turn out to have the same solution.

The key points

This client already has the capital to support the plan.

The extra improvement arises from reorganizing how the capital is deployed.

The takeaway

Just like in a business or a stock portfolio, allocating capital is how you generate returns excess.

Give more thought to how to allocate your capital.

I help people have more retirement income and larger, more liquid estates.

Call in Canada 705-927-4770, or email

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