Life insurance is a vehicle that can play an integral role in generating income in retirement, specifically when held inside a corporation. With policy guarantees, and significant cash values that accumulate tax-free, Adam’s IRP will instantly create a size-able estate that rivals savings in his existing portfolio. Adam’s advisor recommends a permanent life insurance pol-icy, where Adam can deposit lump sums of corporate cash into the IRP, within limits prescribed by the Income Tax Act. Adam can allow the IRP’s cash values to compound tax-free, with the accumulated amount becoming a valuable corporate asset. Once the cash is deposited to the IRP, Adam can choose from a range of investment options. Since Adam’s existing retirement assets are subject to market fluctuations, his advisor recom-mends a more guaranteed solution. With built-in policy guar-antees, these assets form part of Adam’s fixed income component of his overall retirement plan and are beyond the emotions and gyrations of the market. Adam now has a great deal of comfort and certainty as he approaches retirement. In retirement, Adam has a few options to supplement his income stream. He may decide to begin withdrawing the cash value, subject to tax, or he may pledge his corporate IRP as col-lateral with a bank, in return, receiving tax-free retirement in-come payments. How has Dr. Just improved his financial portfolio immediately? As a healthy 45-year-old, Adam purchases a $250,000 corpo-rate-owned permanent life insurance policy. He would like to pay the premiums for 15 years, so the policy is fully paid by age 60 and no further premiums will be required for the remainder of his life. Adam has immediately increased his estate by $250,000, meaning that if Adam should pass away today, $250,000 would be payable as a tax-free lump sum to his estate (i.e., wife, chil-dren, charity, etc.) through his corporation’s capital dividend account (CDA). As he continues to fund the policy over the next 15 years, his advisor details how his estate value increases accordingly. Cash values begin accumulating and compounding tax-free within the policy, both from guaranteed sources and attractive dividend sources. For instance, Manulife’s permanent policy de-clared a 6.84 per cent dividend for 2012, which has been a very predictable, low-risk dividend source at an eighth of the risk variance of the TSX stock market, and a third the variance of even the Scotia Capital universe bond index. Of note, Canada Life declared a 6.8 per cent dividend on its permanent policy for 2012. Understanding the immediate benefits created by life insur-ance, and the tax-free compound growth, Adam’s financial ad-visor suggests he deposit $8,300 to his IRP each year. Over 15 years, that is an out-of-pocket deposit of $125,000. What options will Dr. Just have in retirement? Assuming Adam retires at age 65, and by pledging the policy as collateral, Adam could reasonably expect a retirement income of $14,500 per year, based on current dividend rates and life expectancy. Again, this amount is set within limits and can be at-tuned to more individual preferences and circumstances. Upon Adam’s eventual passing, the insurance proceeds will repay the loan, with the residual value being paid to his estate via a tax-free www.canadianchiropractor.ca Canadian Memorial Chiropractic College Your practice supply partner RMT Chiropractic Acupuncture Visit our new online store at www.cmccstore.ca CMCC Supply Centre & Bookstore 6100 Leslie Street Toronto, Ontario, M2H 3J1 Local: 416 482 1532 Toll Free: 1 800 268 8940 Fax: 416 482 9745 [email protected] CANADIAN CHIROPRACTOR | JUNE 2012 • 39
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