How To Build A Corporate 'TFSA' Through Life Insurance

hi my name is Adam welcome to the channel thank you for joining us today today we're going to talk about whole life insurance and a lot of you will cringe and turn the video off but hear me out I believe that whole life insurance is for one percent of the population maybe not even one percent it's not for most of you but for those of you that it's for it makes a ton of sense and I'm gonna go through how I use whole life insurance in my personal life how we've used it for a few of our clients and why it makes sense in certain situations you know when we talk about life insurance you need life insurance when you're younger you know when you have a mortgage when you have family kids that's that kind of stuff need term life insurance typically and term life insurance will cover you for a sad period of time if you buy 20-year term insurance once you're approved after the next 20 years you're locked into coverage and price you can cancel anytime the insurance company can't cancel on you it's great coverage I have it I have a young family as a lot of you guys know of 49 kids I have a wife a mortgage all that kind of stuff so I have term life insurance I have term 20 life insurance and I have term to age 65 which means that some of my my insurance after 20 years I'll let go and some of it goes all the way to age 65. past 65 ideally my kids are out of the house I have no more debt I have saved up some assets I don't have an insurance need so my term insurance kind of meets the mortgage the kids that kind of stuff if something happened to me I want to make sure I leave my wife in a great situation so why do I need whole life insurance again whole life insurance I won't go too much into it on this video but it's basically insurance as long as you pay into it and pay the premiums it's for your lifetime so think of it as like term to death as long as you've paid the premiums whether that's for a lifetime or you can pay it for 10 or 20 years which I'll go through here in a second as long as you've paid the premiums it's going to be there for you when you pass away I don't think past 60 65 I'll need insurance but I've bought a whole life insurance policy for a different reason and I'll break that down in this video over the last 17 years I've seen people buy Whole Life policies or Universal Life policies both would be called permanent life insurance for different reasons maybe they've been sold by an insurance advisor that just wants a big commission maybe they need it for something else that maybe isn't there anymore you know a business that they bought either they've sold since they no longer need but for the majority of you again term life insurance it's going to give you all that you need make sure you get term life insurance for as long as you need it but typically once you retire there's not a lot of insurance need but whole life insurance or permanent life insurance even universal life but permanent life insurance can make sense for a lot of you if you have a business if you have rental properties or if you have any kind of big tax bill on death so it might be a cottage maybe you bought a cottage in the muskokas for fifty thousand dollars many years ago and now it's worth 1.5 million and you want that Cottage to go to your kids your grandkids and stay in the family but who's paying the tax bill when you pass away there's going to be a tax bill and so life insurance can be a great way to pay that and so again buying whole life insurance or universal life insurance again both are permanent life insurance or as long as you pay the premium M's they're going to be there till the day you die and again talk to your insurance advisor on which one makes the most sense for you again whole life insurance or universal life insurance there's two different options there I'm not going to go into both of them in this video but one of them will make great sense for you if you have a big tax bullet debt again we are working with a client a few months ago that had a lot of rental properties and they wanted to kind of hold them long term and they knew that there'd be a large tax bill on debt it was much cheaper when we built out the plan we showed them some insurance options so Insurance versus no insurance to pay that tax bill they own the rental properties in a corporation they had extra cash flow in the corporation so we could use the corporate cash to pay for the insurance ensure the proceeds would pay out tax-free down the road and put an extra boat four to six million dollars in their pocket so it's a huge advantage to use life insurance now where do I use life insurance why do I have a whole life policy I use whole life insurance policy to build up wealth with a bit of extra cash I have in my company and I'm going to show you the saw software and kind of how I build it out and how it works but essentially I've allocated a certain amount of money so I'm going to say let's let's say five thousand dollars every year of extra money in my company that I don't need and I don't intend to need ever money that I'm gonna pass on to my kids or my grandkids at some point but I also want to use that money to invest and grow over time but I want to avoid the tax bill by buying life insurance a whole life policy part of my premium pays for the insurance so if I do die sooner it's going to be a great return on investment but if I live to when I'm supposed to live which I expect to do I'm paying an insurance premium but I'm also taking more money than that and kind of shoving it into this whole life policy it allows it to go tax-free so it's kind of like a corporate tfsa account that's how I look at it so I've built up a corporate tfsa to shove money into inside my Corporation my company is paying for the insurance it's Sheltering this money in this corporate tfsa and it's growing tax free over time tax-free tax deferred when I die down the road code the majority if not all of it is going to be passed out to the beneficiaries on a tax-free basis so I'm Sheltering my corporate assets during my lifetime and when I pass away it's a way to pass corporate assets to my beneficiaries to my kids grandkids that kind of thing tax free there's no other way to do this and so that's where a whole life policy can make a lot of sense so let's jump into the software and break it down so looking at the software here I'm just going to kind of pull up a simple illustration so this is Manulife now there's different insurance companies that offer permanent insurance policies this one battery life mine is with Manulife the Manulife par is the whole life policy I have there's some great options out there I like Manulife for when I got mine so again premium duration how long are you going to pay the premiums for you can either choose with Manulife 10 years 20 years or to age 90. in this case I'm going to choose 20 years I'm going to keep the insurance amount at 100 000 just for illustration purposes and as I scroll down I've just left it at a 45 year old male if I calculate the premium we're looking at an annual premium of four thousand one hundred eleven dollars so that's the annual premium for the next 20 years now how do I get more money into this because buying just the insurance is great so buying just the insurance is great but how do I shove more corporate dollars in there to grow it tax defer like how do I build this corporate tfsa account and grow money tax deferred and give it to you know my grandkids tax free down the road here's what you need to do so what you want to do is in the software here I'll go payments and there's this thing called deposit option payments and so what we want to do is put the level maximum amount in here for the next 20 years so as we're making premium payments we also want to top it up as much as we can now if I hit recalculate here it's going to give us that option like what's the most amount of money that we can put in here and you can see we can deposit an extra twenty three hundred dollars into this account which is not bad but it's not a huge amount so we could add more Insurance you know bump that hundred thousand up and create a bigger policy bigger premium all that but I don't really want to bump my insurance insurance premium up but I want to bump up this deposit option so what I do is I go into Insurance writers and I add a term insurance writer now I'll just do it for 20 years for a hundred thousand dollars to kind of match what we're doing here and I only want to keep it for 20 years so I'll change that as well going back to payments here I've left it on maximum if I recalculate it now you'll see by adding that term insurance the way that the insurance is calculated and works out and that the extra money that deposit option you can see my base premium has gone up 200 a year because I'm buying that term insurance but the deposit option the money that I can kind of shelter in my uh policy has now jumped substantially to sixty four hundred dollars a year big jump so the total premium this policy will cost me ten thousand dollars just over ten thousand dollars a year but about sixty four hundred dollars of that is me Sheltering and growing corporate dollars that I don't need so instead of taking that and investing it into my dividend portfolio and paying tax on it every year and you know doing it that way this is just is an alternative asset and if you have a company and you have excess cash flow and it might be extra cash flow for you know 5 10 or up to 20 years this is the way to kind of take some of the extra cash flow and shelter it and grow it tax-free now down the road I won't go into this video but down the road if I did need that money you know I could pull it out you know I can bore against it I can pull it out there's different ways to access the cash in your insurance policy but I've built this policy personally my whole life policy that I have with many life the idea of it is it's not a lot of money I'm putting into it but it's really for long term it's for my grandkids or great grandkids down the road so when I pass away it's kind of this nice bucket of money that I haven't really paid tax on other than corporate tax it's grown tax deferred and now it's going to pay out tax-free to my beneficiaries which is amazing to me that's the best way to pass on wealth avoid the tax man altogether and this is the one way to do it it's a really efficient way to do it as long as you have extra cash in your corporation so now that we've determined you know how much the premium the deposit option all that so of my ten thousand seven hundred dollars again 4 300 covers the insurance premium 6400 is savings it builds up now again that premium part of that premium within a whole life policy some of it pays Insurance some of it builds up a cash value and so what I want to do is go into this Concepts and I want to look at an estate Bond on the corporate side I'll build this up with you so you can kind of see how it works so that when you go talk to your advisor you've seen this before it's not the first time so I'm going to go deaf at age 86 and I want to go a growth portfolio so again 10 interest 10 dividends but really capital gains focus and an average rate of return of six percent so if we do this you know this is going to create a more optimal and realistic scenario like if we took the money to invest it versus doing this what makes the most sense so let's just jump into the illustration here and this is looking at again a corporate estate bond this is the terminology that we use in the industry or the Manulife at least uses is when looking at using corporate assets to kind of build up I like to call it a corporate tfsa account because that in my opinion is exactly what it is so again if we scroll down here it's we're buying life insurance with corporate dollars and it's going to pay out to my beneficiaries tax free and so what I want to do is look at again this is just all the data entry that we put in here but what I want to look at is if I took the money and just invested it versus doing life insurance you know how am I ahead how far ahead am I and this again chart to show you yes we're head from day one to day you know 40 or year 40. but what I want to look at here is the actual number so if I look at okay I'm going to make a deposit here of Ten Thousand Seven seventy seven for 20 years now if I do that here annual deposit you know before tax redemption value so again some of it's building up a cash value some of it's paying the insurance so if after year one I pay my premium and decided I didn't want it there would be 8 300 I'd have to that'd be in my Corporation so I'd have to pay tax on that to pull it out but of course you know not doing it for that I'm building it for long term and you see the total death benefit in year one is 222 000 and CDA credit that's your Capital dividend account there's lots of videos on that if you don't know what a capital dividend account is search it but that's basically the amount of money that would be paid in when life insurance is paid and owned by a corporation when there's a death benefit is paid into that CDA account the majority of it's paid into a CDA account and can flow out to shareholders on a tax-free basis so again this CDA account value is important because the total death benefit is 222. 212 of that would flow to the shareholders tax-free the other 10 000 would be taxed so the net after tax value would be 219 000 versus the investment would be seventy four hundred dollars because there's a lot of tax to pay you gotta get the money out of your corporation invest it pay the tax all of that as we move forward you can see on the right hand side net asset value of your investment down here at net value of your estate here again there is a Redemption so after 15 years your account would be worth 218 000 before tax 177 after tax so it's roughly the same but again what we're doing is we're building this up for the death benefit and the tax Sheltering of your asset so if we fast forward all the way down to age 86 which is life expectancy you can see here we have a net Estate Value so this policy would pay out just over a million dollars had you invested the money you paid the tax along the way eight hundred and seventy thousand dollars so this is where I'm using and again if this might make sense for you you want to sit down with your financial advisor with your insurance advisor and break this down again if you have a corporation you have a bit of extra money or you know you have a tax bill might be again a rental property it might be a cottage that you want to keep in the family whatever it is if there's an imminent tax bill does it make more sense to buy insurance pay that tax bill or just pay with other assets when you die I don't know what the answer is for you in your situation but it's worth doing the due diligence to compare apples to apples often we'll say insurance doesn't make sense for you you have enough assets and you're you know maybe you sell your principal residence pay the tax on your cottage your cottage stays in the family there's a little bit of money left over from your principal residence there's not a right or wrong way here but I really find Value in the corporation if you have extra cash flow in your corporation you know you can save that up build a corporate account invest that I talked about that not too long ago here but an alternative asset would be a whole life insurance policy again if I pass away earlier than about age 83 not all of it will be tax-free but the majority almost all of it will be tax-free and you can see that like if we scroll back into the software here if I passed away I'll just scroll back up at age 75. so you can see here the death benefit would be 814 690 of that would come out tax-free so even after tax 771 000 so we're losing about 40 you know 40 000 just over that to taxes but the majority of it is being paid tax free to my beneficiaries which that's corporate dollars being paid tax free out like you can't do that anywhere else so this is where I think it makes sense so again look at your checklist do you have rental properties that are going to create a tax bill for you at death consider permanent life insurance do you have a cottage your second property or something you want to keep in the family that there's going to be a tax bill when you pass away consider permanent life insurance if you have a company with extra cash flow and that extra cash flow might be for five years ten years 20 years maybe even longer if you have extra cash flow you want to shelter that and ideally it's for the Next Generation consider permanent life insurance special whole life insurance in that situation those are three scenarios where I think it can make a lot of sense again I've broken down these numbers for a lot of clients over the years often it doesn't but it's worth it for you to do the due diligence to see if it makes sense for your situation if you're someone that you have your principal residence you have no rentals no Cottages no company you work and you're building up an rrsp or pension whatever it is you probably don't need permanent life insurance and if you have permanent life insurance you might want to sit down and review are the premiums you're paying for that worth it I find a lot of 30 and 40 year olds get roped into permanent life insurance because it pays the advisor a really nice premium so the client doesn't need it but they've been sold it so the advisor can have a nice commission check if you don't fall into kind of these three there might be a few other little small categories that you might fall into where permanent does make sense but for the majority of you term life insurance will cover all the boxes check all the boxes so if you've bought permanent life insurance whether it's a universal life or whole life policy and it's worked well for you leave a comment below on why you bought it again I know a lot of you are against insurance and and I get that I'm not here to push insurance I'm here to inform you that most of you don't need this you need term life insurance but again there's a small handful that need this that can really be taken advantage of avoiding tax bill deferring tax bill creating a much better tax situation for you maybe allowing to pass rental properties to the Next Generation vacation properties all that you're missing out as long as the numbers make sense and it puts more money back in your pocket or more money back in the pocket of your beneficiaries your estate a charity whatever it is then it makes sense so we will do some videos going forward here on term life insurance I think because most of you need that at some point in your life it's important to understand how that works again our Master Class if you're a bit younger 20 30 40 wanting to learn like Financial education all that we do have our financial master class parallelwald.com education you can learn more about our Master Class talks all about insurance what you need planning saving taxes all of that it kind of gives you all the tools that you should have learned back in high school that they never teach you we've created a course for that so check that out again parallelwald.com education so thank you so much for joining us in this video hopefully it helped you out again if you have permanent life insurance and why you bought it leave a comment below love to hear that and we'll see in the next one

Channel: Parallel Wealth

Views: 5,578

Keywords: Financial Planning, Retirement Planning, Estate Planning, Retirement, Tax Planning, Investing, RRSP, TFSA, Wealth, Parallel Wealth, whole life insurance, life insurance investing, life insurance rental property, life insurance corporation

Id: U-ET_JPQ4ko

Length: 16min 50sec (1010 seconds)

Published: Tue Oct 18 2022