Did you know that retirement planning is an important part of financial stability and security for individuals and families? While most people focus on Registered Retirement Savings Plans (RRSPs), Tax Free Savings Accounts (TFSAs), and pensions, one aspect that is often ignored is permanent life insurance. Permanent life insurance can play a significant role in your retirement planning by offering great benefits that will complement other retirement savings plans. In this blog, our advisor at Aarna Insurance is going to shed some light on how permanent life insurance can enhance your retirement strategy in Canada.
Permanent life insurance is different from term insurance because it covers you for your whole life as long as you keep paying the premiums or have already paid them all. In Canada, there are two main types: whole life and universal life insurance. Both give a death benefit and have a cash value component. They are different in how flexible they are and the investment options they offer.
Whole Life Insurance has a fixed premium, so you always pay the same amount. It guarantees a death benefit for your family, and the cash value grows over time. The insurance company handles the investments, making it a safe choice with low risk for people who like stability.
This type of insurance is more flexible, letting you change your premiums and death benefits. But this type of policy can be complicated to manage. It also has investment options, so you can grow your cash value depending on how much risk you want and your goals.
At Aarna Insurance, our advisor can guide you based on your need analysis to determine which option is best suited to you and your family.
Permanent life insurance lets your cash value grow without being taxed each year. This means it can grow faster over time. It is especially useful for people who make a lot of money and want to save more in a tax-friendly way besides using RRSPs and TFSAs.
You can use the cash value from a permanent life insurance policy while you are still alive. It can be used to withdraw money or to get a loan. Even though taking money out might lower the death benefit, it can give you some financial flexibility during retirement. Loans against the policy are usually tax-free, which is great for boosting your retirement income.
Permanent life insurance is helpful for planning your estate and passing on wealth. The death benefit usually goes to your beneficiaries without taxes, which can help them with any estate taxes or debts. This is great for people with a lot of assets who want to make sure their wealth is passed onto future generations.
Permanent life insurance can add to your retirement savings by providing a steady source of money that is not affected by market ups and downs. While other investments might change in value, the cash value of a permanent life insurance policy grows steadily, which can be a reliable financial resource during retirement.
Many permanent life insurance policies come with extra benefits like coverage for long-term care or critical illnesses. These benefits can help pay for serious health issues so you don’t have to use your retirement savings for medical expenses. This helps keep your retirement funds available for their intended use.
Michael and Margaret are a Canadian couple in their mid-40s. They have put as much money as they can into their RRSP and TFSA accounts, so now they're looking for other ways to save for retirement. They decide to buy a whole life insurance policy that pays a big payout when they pass away and builds cash value over time.
As the years go by, the cash value of their policy grows, and as per the policy terms, they did not have to pay taxes on it right away. By the time they retire, they have a lot of money saved up in the policy. When they stop working, Michael and Margaret use the cash value to add it to their income. This helps them to keep living the way they want without using up the money in their RRSPs too quickly.
Besides helping with retirement money, their kids will get a tax-free inheritance when Michael and Margaret pass away. This helps keep the family's money safe for the future. When they bought the policy, they also chose to add a critical illness rider to their policy, providing them coverage for at least 26 illnesses. This gave them peace of mind as they knew that they have coverage for healthcare costs so that they will not have to spend their retirement savings.
Before buying a permanent life insurance policy, you need to know what your money goals are, especially for retirement. Think about how you want to live when you retire, how much healthcare might cost, and what you want to leave behind for your kids and surviving family. Knowing these things will help you pick the right policy and coverage amount.
Permanent life insurance can have different investment choices, like with universal life policies. Figure out how much risk you are okay with and pick a policy that matches what you are comfortable with. If you do not like taking risks, whole life insurance might be better. But if you are okay with taking some chances in the market, universal life insurance could be a good option.
Using permanent life insurance for retirement takes some thinking and expert help. A financial advisor can explain the pros and cons of different policies, making sure your insurance plan fits with your retirement goals. They can also help you set up the policy to get the most out of it. At Aarna Insurance, our advisor will help you whether it takes 2 minutes or 2 hours for consulting.
Buying permanent life insurance when you are younger can be cheaper because the premiums are usually lower when you are young and healthy. Plus, the longer you keep the policy, the more time the cash value gets to grow. If you are thinking about adding permanent life insurance to your retirement plan, it might be a good idea to start early.
Things in life change and so can your money goals. It is important to look at your permanent life insurance policy now and then and make changes if you need to. This could mean increasing the death benefit, changing premium payments, or adding extra coverage with riders.
Permanent life insurance can be a good choice for retirement, but there are some things you should think about to make sure it works for your money plans:
Permanent life insurance costs more than term life insurance. You need to make sure you can afford the payments without hurting your budget.
These insurance plans can be confusing because there are lots of options and features. It’s important to understand them so you can make a good and informed decision.
You can take money out from the policy as and when you need (as per the policy terms), but taking money out of your policy might lower the amount of money your family gets when you pass away. You need to think about how much money you need now versus what you want to leave behind.
With universal life insurance, how you invest your money affects how much it grows. You need to be careful with your investments to make sure they match your comfort with risk and your retirement goals.
Permanent life insurance can be a good part of your retirement plan in Canada. It can help your money grow without paying taxes, give you access to cash when you need it, help with estate planning, provide extra income when you retire, and leave a big inheritance for your kids. By including permanent life insurance in your retirement plan, you can improve your financial security, protect your money, and have a comfortable retirement.
When thinking about permanent life insurance, it is important to talk to a financial advisor who can help you understand different policies and create a plan that fits your needs and goals. With careful planning, permanent life insurance can work well with your other retirement saving options and provide long-lasting benefits for you and your family.
At Aarna Insurance, we know how tough and stressful it can be to navigate the insurance and financial planning landscape. We are here to help and make sure you get the best coverage possible.
CLHIA is an industry association that provides information about life and health insurance. The CLHIA Website offers resources and consumer guides on understanding life insurance policies and claims.
OLHI provides a free independent service to help resolve disputes between consumers and their insurance companies. The OLHI Website provides information on how to file a complaint and access their services.
Various non-profit organizations and government initiatives provide educational resources to help consumers understand life insurance and make informed decisions.
Examples: Get Smarter About Money and Financial Consumer Agency of Canada’s Life Insurance Guide.
The above article is for informational purposes only and should not be considered as professional advice. Always consult with a licensed insurance broker or financial advisor before making any decisions regarding insurance coverage.