Mike’s Life Insurance Advice

Dear Tim,

Although most people tend to collect assets as they get older it sounds like you have done exceptionally well. Congratulations.

And yes, there are a number of attractive insurance products that can help you build your cash in a tax sheltered environment.

One of these products is universal life insurance. Since you’re debt free and have maximized your retirement savings plans a universal life insurance policy could work perfectly for you.

Since you receive investment income you know that a very high percentage of that money usually goes towards income tax. And if it’s interest income I know that you’re well aware that this income is being taxed at the highest possible rate.

Also, although you didn’t mention it, if you’re concerned about your guaranteed investment contracts (GICs) you can rest assured knowing that it’s possible to hold them within your universal life insurance policy on a tax sheltered basis. In addition you can use one of the indices to outside indicators, such as the S&P 500 index, or the Morgan Stanley Capital International World Index, or even a combination of indices.

Are There Limits On Deposits?

There are limits on the amount of money that you can deposit into your tax sheltered universal life insurance policy. However there are a number of ways you can affect these limits.

First of all, the limits are primarily determined by the size of the plan you decide to buy.

In addition, should the investment component exceed the limit set by the government it is possible for you to buy the policy on the side by increasing the face amount of your policy, stopping any additions to the policy, or making withdrawals.

A universal life policy is a rather complex product and you should seek professional advice before you go ahead. With that in mind, here’s an example of what a policy like this can offer you and your children.

If you and your spouse are sixty-five years old and don’t smoke let’s take a look at how you can create a $3,000,000.00 tax free estate with a universal life policy. First, you will deposit half a million dollars into your plan – and use a rather reasonable 7% interest rate assumption.

Your money will be tax sheltered as you deposit $100,000 per year over the next five years into your plan.

Upon your demise your universal life insurance policy will pay out $3,000,000.00 tax free to your beneficiaries.

And you will also enjoy the flexibility of leaving your taxable assets to the charities of your choice – on a tax free basis – while simultaneously leaving your children your tax free insurance policy. In other words, the charities win, your children win, and the government gets nothing.

Remember that this is just an illustration. Make sure to talk to your insurance advisor for further details.

Mike