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Florence Marino, Assistant Vice-President of Tax and Estate Planning Group for Manulife Financial

Life insurance should be a major consideration in overall retirement planning, says Florence Marino, Assistant Vice-President of Tax and Estate Planning Group for Manulife Financial.

Some people may question the continued relevance of life insurance, once their retirement nest eggs have grown and their children have left the home and are no longer dependent. But the purpose evolves as people age: Insurance can play a part in generating income for retirement, covering taxes and treating heirs in a fair manner, Ms. Marino says.

Life insurance can help maximize an estate's worth for beneficiaries, and is critical in tax and estate planning, she says.

An individual's assets such as registered funds, real estate (other than one's principal residence) and stock portfolios may be taxed at the time of death.

Individuals need to ask themselves if they want their beneficiaries to have to liquidate some assets in order to pay these taxes, she says.

If the answer is no, an alternative is using a life insurance policy whose primary purpose is paying the taxes that may be incurred at the time of death. The premiums may be inexpensive compared to funding the tax liability out of an estate's assets, Ms. Marino says.

Insurance can also be used to augment retirement income. One strategy is buying exempt life insurance – in effect, a permanent life policy that has some cash value.

If needed, the cash portion may be withdrawn, and may be taxable. Whatever is left in can add to the death benefit, Ms. Marino says.

The cash value of an exempt life insurance policy may also be used as collateral for a loan, she says. This is called leveraged life insurance, and the borrowed funds may be used to supplement retirement income.

The loan can be structured so that repayment does not occur until death. The proceeds from the insurance policy will repay the outstanding loan, and any remaining death benefit proceeds will be paid to the policy's beneficiaries.

Yet another way life insurance comes into play in managing an estate is in "equalizing" what individuals pass on to their heirs, Ms. Marino says.

For an individual whose primary asset is a family business, what happens if only some of the children are in the business? Those children may eventually inherit the business, so how might other children be given a fair slice of an estate? The benefits from a life insurance policy can be used to ensure that the children not in the business also receive a fair inheritance, without the business having to be sold.

When people are young, it's natural to view life insurance as a way to protect their family, and other savings and investments as a way to plan for the future, Ms. Marino says. "But insurance can be useful at all stages of life."