Many people think of life insurance as a way to provide a tax-free death benefit to loved ones. Yet you can use life insurance to do much more:
- You can defer, or put off, paying tax on the money you make investing your cash value savings. Other than a Registered Retirement Savings Plan (RRSP), life insurance is the only way you can do this
- Your loved ones can use the death benefit to pay off taxes or other final costs when you die
- Life insurance can help your business survive the death of a key employee, including a business partner.
In addition to tax and estate planning, some life insurance policies are even useful for borrowing money. If you have permanent life insurance, you can build up cash value, then borrow money from this account when you need it. You can also borrow from a financial institution using the policy as collateral. Since your loan is secured by the policy, you might be offered an attractive interest rate on the loan. In either case, the insurance can pay off the debt after your death.
Remember: Life insurance can play many roles in your financial plans
You may want to get expert advice to make sure you get the benefits you expect.
Content in this section is provided in partnership with the Investor Education Fund, a non-profit organization promoting financial literacy to Canadians. To find out more go to GetSmarterAboutMoney.ca.