Desjardins Financial Security

Insurance: Tax-Free Financial Security

You've worked hard and accomplished a lot-and today your family is enjoying the rewards. But what about tomorrow? Did you know that taxes could be a real threat to your family's quality of life after you're gone? Thankfully there are solutions. You can protect against taxes now and at death.

Tax-Free Insurance

Life insurance is one of the last tax shelters still available today. Do you have life insurance? Any benefits paid out upon death will be tax free!

Why life insurance is a good idea

It can protect your family's quality of life
Life insurance can help your family meet special needs in the event of your death, such as paying off the mortgage, making up for lost revenue, paying for your children's education, reimbursing debts, etc.

It can protect the value of your estate
Income tax can eat up a huge chunk of your estate after both spouses have died.
Insurance is a great way to provide your estate with the cash it needs to pay income tax, particularly on capital gains (cottage, property, business, capital stock, etc.) or RRSPs or RRIFs that have become taxable.
For a small percentage of the value of your assets, you can offset the tax bite and keep your estate intact.

It can protect your business
Do you own a business?
You can use life insurance to buy back the shares of a deceased partner through a buy and sell agreement that sets out the terms of transfer for the business in the event of a partner's death. If you need to borrow capital, the lender will no doubt insist you insure the loan. In such cases, you can deduct a portion of the insurance premiums from your income.

Feel free to contact our advisors anytime to learn more about the possibilities you enjoy with Universal Life Insurance.

On top of all the benefits of regular life insurance, our Universal Life Insurance offers added features that make it one of the best tax shelter choices around. If you're at a point in your life when you'd like to shelter more of your savings from tax, simply select one of the numerous investment opportunities available with Desjardins Financial Security and enjoy the following benefits:

Save money tax free

The money you put toward universal life insurance is applied first to your premiums. After that, any surplus amounts are tax-free savings for you. These savings bear interest at a much higher rate than chequing savings accounts. What's more, yearly investment bonuses of up to 1.75% can give an added boost to your tax-free savings. Depending on your investment profile, your portfolio can be made up of Guaranteed Investment Certificates or index funds tied to world markets (Canada, United States, Europe, Asia).

Your investment mix can range from low to medium or high risk and your portfolio can be planned and managed with or without the assistance of our advisors. The more insurance options you have under universal life, the more tax-free savings you can enjoy.The faster you save, the more tax-free capitalization privileges you enjoy.

Pay no tax on your savings upon death

As with insurance benefits, any savings you have put aside will be remitted tax free to your estate. In addition, if your policy covers more than one person and the beneficiary has no immediate need for the savings upon the death of one of the insured parties, the amount can be rolled over tax free to take full fiscal advantage of this type of insurance.

Protect your savings from creditors

The savings are also protected from seizure the same way insurance is. Universal life insurance savings are like having an interest-bearing account at a financial institution that is out of the reach of creditors.

Use your savings while you're still alive

Put yourself in control
You can use your savings to top up your retirement income, retire earlier, make a special dream come true, get extra help around the house or for anything else you desire. In many instances, you can arrange for tax-free withdrawals so that you enjoy the full benefit of your money. And when taxes have to be paid, they're often payable on interest income only.

Maintain your quality of life
You can also include special health coverage in your universal life policy. In case of serious illness, the coverage pays a tax-free, lump sum amount you can use however you like to maintain your quality of life. You could decide to:
- Obtain medical services not covered by your provincial health plan;
- Pay for additional or experimental medical treatment, or for adapting your living environment to your physical condition;
- Offset a salary loss from reduced work hours;
- Pay off debts, take an early retirement, etc.

Receive disability benefits
You may access your savings through disability benefits, which are not subjet to tax.

Increase your retirement income
You may also use your universal life insurance as collateral for a loan or a series of loans with a financial institution. You could use the loans to take a sabbatical year or early retirement, or to increase your retirement income. Some institutions require no repayment of capital or interest until death. Although interest on such loans is not deductible, the loans themselves are tax-free.
Your financial circumstances and needs will dictate whether it's best to withdraw a part of your universal life savings or use your universal life policy as collateral for a loan.

Saving for your children's or grandchildren's education
If you have children or grandchildren, universal life insurance is a good way to save money tax free for their education or any other purpose.
As the parent or grandparent, you can take out a universal life insurance policy on the child's behalf, deposit the maximum amounts the policy permits and transfer the money tax free to the child once he or she is 18 or older.
From that point on, the child can withdraw amounts from the savings as needed and pay any taxes owing. Since the child will likely be in a relatively low tax bracket, a good amount should be available for withdrawal each year tax free.