Insurance

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    Term vs Permanent Life Insurance: Which One Makes Sense for You Right Now?

    ByStan S.

    Life insurance is one of those financial products people know they need but often avoid discussing. The choice between term and permanent coverage can feel more complicated than it needs to be, especially when you’re trying to make the right decision for your stage of life. This article walks through three real-life scenarios to help you see how these policies work in the real world. No sales pitch. Just clarity, with the goal of helping you protect what matters most. What’s the Difference? Term life insurance is designed to cover you for a specific period, such as 10, 20, or 30 years. It’s typically used to protect against time-limited risks like a mortgage or the cost of raising children. Premiums are lower and fixed for the length of the term. Permanent life insurance lasts for your entire life and comes with a built-in cash value component that grows over time. You pay more up front, but the policy can serve multiple purposes: coverage, savings, and estate planning. Both types of coverage have their place. Here’s how they play out in real financial lives. Scenario 1: The New Homeowners Sam and Dani are both 31 and recently bought their first home in Kitchener. With a 25-year mortgage and a baby on the way, they’re feeling the weight of financial responsibility for the first time. They want to make sure that if either of them passes away unexpectedly, the surviving partner could manage the mortgage and continue building the life they’ve started. They choose 25-year term life insurance policies that align with the length of their mortgage. The cost is manageable, which is especially important given the added expenses of homeownership and upcoming childcare. More importantly, the coverage gives them peace of mind. If something happens, the mortgage would be paid off and the household could stay afloat. For Sam and Dani, permanent insurance isn’t on the radar yet. Their focus is on affordability and covering major risks during a very specific time in their life. Term insurance checks all the boxes without adding extra financial strain. Scenario 2: The Business Owner Planning Ahead Jordan is 45 and runs a successful HVAC company with a team of 14 employees. He’s worked hard to build the business and wants to make sure it survives if something happens to him. At the same time, he’s starting to think about how to create tax-efficient wealth that he can pass on to his children. Jordan decides to take a layered approach. He keeps a 20-year term life policy in place to protect the income his family relies on. This also provides liquidity to cover outstanding business debts and operating expenses in case of his death. But he’s also thinking long term. Working with his accountant, Jordan adds a corporate-owned permanent life insurance policy. The cash value inside the policy grows tax-deferred and gives him options. He could borrow against it in retirement or use it as a tool to pass wealth to the next generation more efficiently. This combination gives Jordan both flexibility and control. The term policy handles today’s risk. The permanent policy quietly builds value in the background, ready to support a future need. Scenario 3: The Retiree Focused on Legacy Nora is 68 and enjoying her retirement in Victoria. Her home is fully paid off, and she lives comfortably on her CPP, OAS, and a small investment portfolio. She doesn’t have any dependents, but she wants to make sure her final expenses are covered and that she can leave a small legacy to her niece, who helped care for her during a health scare last year. With those goals in mind, Nora applies for a small permanent life insurance policy. The premiums are locked in for life, and the policy guarantees a payout whenever she passes. There’s no expiry date and no need to revisit her coverage every few years. She likes the certainty and appreciates the simplicity. For Nora, a term policy wouldn’t offer the same peace of mind. It could expire before she needs it or cost much more to renew later. Permanent coverage allows her to set the policy in place and know the funds will be available when her estate needs them. How to Choose Wisely Your decision should reflect your current priorities. If you’re in the early stages of building a family or paying off debt, term insurance gives you solid protection at a price that works with your budget. If you’re thinking about legacy, tax efficiency, or lifelong coverage, permanent insurance may be the better fit. Many Canadians start with term coverage and move to permanent later. Most term policies include a conversion option, allowing you to switch to permanent coverage without new medical underwriting. This is a valuable feature if your health changes as you age. Final Word There’s no single right answer when it comes to life insurance. The right choice is the one that supports your goals, fits your finances, and protects the people and plans you care about. Whether you’re starting a family, building a business, or preparing your estate, life insurance should align with where you are and where you’re going.

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    How to Layer Insurance with Wealth Planning for Tax Efficiency

    ByStan S.

    Once you’ve built a successful business or career and your registered accounts are fully funded, the financial priorities begin to shift. At this stage, planning becomes less about accumulation and more about preservation, tax efficiency, and leaving a meaningful legacy. Insurance, when integrated properly into a financial plan, can do more than provide protection. It becomes a tool for tax-efficient investing, corporate planning, and estate preservation. The key is knowing how to layer insurance solutions within your broader wealth strategy. 1. The Insured Retirement Plan (IRP) For incorporated professionals with surplus retained earnings, an insured retirement plan offers a way to grow wealth inside the corporation while creating access to tax-efficient income in retirement. This strategy uses a permanent life insurance policy that builds cash value over time. Premiums are funded with after-tax corporate dollars, and the policy grows tax-deferred. In retirement, the policyholder can borrow against the cash value using a line of credit to supplement income without triggering personal tax. The loan is repaid from the insurance proceeds upon death, and the remaining benefit creates a credit in the capital dividend account. That allows funds to be distributed to shareholders tax-free. It’s a structure that supports both retirement income and long-term estate value. 2. Corporate-Owned Life Insurance (COLI) When business owners want to protect the value of their company and reduce future tax liabilities, corporate-owned life insurance can be a powerful solution. In this setup, the corporation takes out a permanent life insurance policy on a shareholder or key individual, paying premiums with after-tax dollars. When the insured person passes away, the policy pays out a tax-free death benefit to the corporation and generates a capital dividend account credit. This structure adds liquidity exactly when it is needed and allows the business to pass funds to shareholders tax-free. It’s commonly used to fund buy-sell agreements, cover capital gains tax, and support succession planning, while keeping the business intact and financially stable. 3. Estate Preservation and Equalization For high-net-worth families with multiple heirs and significant illiquid assets, insurance can help bring clarity and fairness to the estate planning process. Rather than trying to divide a business, property, or other hard-to-split assets among children, parents can use life insurance to create liquidity. One heir may receive the family business, while another receives a tax-free payout from the policy. Insurance proceeds can also be used to cover capital gains tax, preventing the forced sale of real estate or investments. This strategy allows families to preserve important assets and pass them on intact, while minimizing conflict and ensuring a smoother transfer of wealth across generations. A Strategic Asset in Wealth Planning Life insurance can serve many roles in a financial plan. It creates tax-efficient cash flow during retirement, adds liquidity to a corporation, and provides stability to an estate plan. The most effective approach involves working closely with a financial advisor, tax professional, and insurance expert who can design a strategy tailored to your goals. For incorporated professionals and affluent Canadians, insurance planning is not just about risk management. It is about structuring your financial life in a way that supports long-term success and legacy. With the right strategy, you can preserve more of what you have built and pass it on with greater efficiency.