Did you know that most insurance coverage amounts such as Life insurance and Critical Illness insurance are paid out “tax free” at time of claim? One of the easiest methods to accumulate money in your estate is to purchase one of these insurance products.

With our federal and provincial tax systems, it’s very difficult to accumulate large sums of money. It also takes a long time to accumulate it. So quite often, it’s not available when you need it most.

By using financial products such as Life and Critical Illness insurance you can protect what you’ve already got, and accumulate more on a tax free basis. Here are some examples:

Let’s assume that a 65 year old male non smoker requires $500,000 to cover the cost of hospital and medical bills related to a critical illness plus pay off some debts.

In order to accumulate $500,000 at age 65, the male would have had to start saving money at age 40. Assuming various tax brackets and an average rate of return of 8%, here is what he would have had to save each year.
 

Conversely, if he bought a Critical Illness policy to age 75, it would cost him $4,635 per year over the 25 years or $115,875 in total. If he added a Return of Premium rider to the same policy it would cost him $6,261 per year or $156,525          in total.

However, under the last scenario, if he didn’t have a claim he would be eligible for a full premium refund either upon cancellation of the policy, at maturity or at death.

Similar options are available when considering the use of Life Insurance to create Tax Free dollars.

Let’s assume that the estate of our 65 year old male non smoker requires $500,000 to cover the capital gains tax due at his death on his investment portfolio, business interests or cottage.

If he bought a Life insurance policy to age 100, it would cost him $4,350 per year over the 25 years (actual premiums would only be payable for 20 years) or $87,000 in total.

However, under this last scenario, if he wanted to surrender the contract at age 65 as he hadn’t died, he would have access to the policy’s  cash value in excess of what he had actually put into the policy 100% contractually guaranteed by the insurance company. If he decided to keep the policy in force, it will provide the full $500,000 Tax Free benefit regardless of the date of his death with no additional premiums required.

For more information on how Critical Illness or Life insurance can work for you contact Barrons today for a no obligation appointment.

This example is for illustration purposes only, while every attempt has been made to ensure the accuracy of this information Barrons or its affiliated companies cannot be held liable for errors or omissions. Actual numbers at time of illustration may vary