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Planning for the Future with Supplementary Retirement Benefits

We need only turn on the TV, go online or pick up a paper to read that Canadians are not saving enough for retirement. Government plans alone will not provide most people with an income they consider adequate. With that in mind, are there other ways that you can secure additional retirement benefits and limit the threat of unexpected expenses? The answer is yes. And a good solution for those who have reached maximum contribution levels toward other retirement savings plans may be the benefits offered by life insurance policies.

How does it work?
Purchasing a life insurance policy is not just a way to provide financial compensation for beneficiaries in the event of your death. The right coverage can also serve as an investment opportunity. By depositing funds into a permanent life insurance policy in excess of what is required to cover costs, you can turn your life insurance protection into a line of credit. The policy may be leveraged as collateral for a loan. At the time of death, your carrier will pay off the debt and your designated beneficiaries will receive the remaining funds. In this way, you’re able to supplement your retirement income without passing on a loan obligation to loved ones. 

What are the rewards?
The greatest asset to using life insurance to supplement retirement costs is the peace of mind it can offer. For those who have maxed out contributions to pension plans, Registered Retirement Savings Plans (RRSP) and Tax Free Savings Accounts (TFSA), this method of investing can offer another way of planning for the future.

Additionally, using life insurance as a retirement supplement offers Canadian tax benefits. While income earned in retirement can be assessed, universal life insurance policies are tax exempt. This means that loan advances obtained through the insurance policy don't count as taxable income, giving you a larger financial boost.

None of this is meant to replace the primary purpose of life insurance: money paid to beneficiaries upon the death of the policyholder. For those looking to provide their family with security in a time of bereavement, or to relieve the burden of funeral costs, life insurance is essential.

Whole vs. Universal
There are two types of permanent life insurance policies that you can choose from: whole life and universal.

  1. A whole life insurance policy is normally valid for the policyholder’s entire lifetime. The policyholder is required to pay a set and level premium for a specific period in order to receive death benefits. This period may be short or long, depending on the needs of the policyholder. A briefer window will result in higher premiums, but will also allow the policyholder to pay off the insurance before they retire. 
  2. Universal life insurance offers more flexibility, allowing policyholders to reduce or increase the death benefit. This type of policy also allows holders to pay premiums within any timeframe (with certain limitations) after the first installment has been paid. 

The policy you choose, as well as any role it will play in your retirement planning, should be based on your financial goals. Different policies offer varying investment opportunities and perks, making it important for you to fully understand your options.

If you are looking to secure your future while guaranteeing that money is left for loved ones, contact a HUB International broker today. We can help you explore choices and select the policy that best meets your objectives.