Who SHOULD NOT Use Life Insurance As An Investment
Have a look at the cons mentioned above. Life insurance polices are illiquid so money is not easily accessible. There’s an insurance cost. RRSP’s and TFSA’s are better options (you’ll have more money if you use them than if you use a life insurance policy).
This suggests first of all that anyone who hasn’t maximized their RRSP’s, TFSA’s and other gov’t authorized programs, should do that first before looking into life insurance as an investment. Perhaps more succinctly you should not use life insurance as an investment until your RRSP’s, TFSA’s and RESP’s are maxed.
Further because life insurance is illiquid, you should not use life insurance as a retirement planning tool until your retirement income is completely assured. You should not use life insurance as an investment tool until your retirement is fully funded.
Who SHOULD Use Life Insurance As An Investment
At a certain point, you may have your retirement fully funded. You’ve maximized every available tax sheltering tool. You have more money than you’ll likely spend in your lifetime. With RRSP’s and TFSA’s fully funded and thus no longer an available option, and with retirement assured, at that point life insurance will outperform many of your remaining investment choices.
There’s a variety of ways to state the above, here’s a few generalizations that tell you when you should look at life insurance as an investment:
- Your RRSP’s and TFSA’s are maxed out.
- You have greater than $2MM in investable assets.
- You have tax concerns, or are looking at tax efficient strategies to keep as much of your net worth as possible.
- Your retirement is guaranteed.
I’m emphasizing SHOULD at this point because there’s a good chance that life insurance, and the strategies outlined below, have not been presented to you. As a client said to me, “If it’s so great, how come I’ve never heard of it before?”. The answer is simple, most investment advisors do not have a strong grasp of advanced life insurance strategies. Their focus is on investments and they don’t present information that they’re not familiar with or expert on. (Similiarly, you shouldn’t generally take portfolio investment advice from an insurance expert. They simply won’t spend enough time on investments to be expert level at the advanced intricacies of investing. This is the primary reason why we don’t offer overall investment advice. We will frequently advise clients to seek advice from their financial advisor, their accountant, or lawyer. And certainly if you use any of the strategies presented here you must run them past your accountant and/or lawyer for their approval and confirmation. We encapsulate this approach right in our company name – Only Insurance Inc.).