Permanent Life Insurance

Cash Value Life Insurance

Lifetime protection plus tax-deferred savings. Build wealth while protecting your family.

2-in-1
Death Benefit + Savings
2-5 Years
Cash Value Accessible
Tax-Free
Death Benefit to Beneficiaries

Professional Explanation

Cash value life insurance (also called permanent life insurance) combines two financial elements: a death benefit (like term life insurance) and a tax-deferred savings component that accumulates value over time. This distinguishes it from term life insurance, which is purely a death benefit with no savings component.

Premium Allocation:

When you pay premiums on a cash value life policy, the payment is divided among three uses:

  • 1. Death benefit cost (increases with age)
  • 2. Insurance company fees and expenses
  • 3. Cash value accumulation (decreases as portion 1 increases)

Early years involve mostly fees and insurance cost; later years see more premium directed to cash value. This is why cash value typically takes 2-5 years to become accessible.

Types of Cash Value Insurance:

Whole Life Insurance:

  • • Guaranteed death benefit for life
  • • Guaranteed cash value growth (predictable)
  • • Guaranteed interest rate component
  • • Stable, conservative growth
  • • Higher premiums (5-15x term insurance cost)

Universal Life Insurance:

  • • Flexible death benefit
  • • Variable cash value based on investment performance
  • • More risk but higher growth potential
  • • Allows policy adjustment as life changes

Participating Whole Life:

  • • Guaranteed base coverage
  • • Dividends paid annually based on company performance
  • • Dividends can increase coverage, reduce premiums, or be withdrawn
  • • Combines security with flexibility

Accessing Cash Value:

Policy Loan:

  • • Borrow against cash value at competitive rates
  • • Doesn't cancel policy or reduce death benefit
  • • Interest-free loans possible in some cases
  • • Tax-free until policy lapses

Partial Withdrawal:

  • • Withdraw portion of cash value
  • • Reduces death benefit by amount withdrawn
  • • May have tax implications if withdrawal exceeds cost basis

Policy Surrender:

  • • Surrender entire policy
  • • Receive cash surrender value
  • • Loss of all death benefit coverage
  • • May trigger capital gains tax

Tax Advantages:

  • • Growth is tax-deferred: Unlike regular investment accounts, you don't pay annual tax on cash value growth
  • • Withdrawals up to basis are tax-free: You can withdraw up to the total premiums paid tax-free
  • • Policy loans are tax-free: As long as policy remains in force
  • • Death benefit is tax-free: Beneficiary receives benefit tax-free

Use Cases:

  • • Estate equalization (provide assets to children who didn't inherit business)
  • • Tax-efficient wealth transfer to next generation
  • • Corporate-owned life insurance for key person coverage or buy-sell agreements
  • • Retirement income supplement (when other accounts maxed out)
  • • Long-term care funding

Cost vs Benefit Analysis:

  • • Much higher premiums than term life (5-15x more expensive)
  • • Premium commitment is lifelong (unlike term, which ends)
  • • Cash value buildup is slow initially
  • • Opportunity cost: Compare to investing difference in RRSP/TFSA

Simple Explanation

Easy to Understand

Cash value life insurance is like two things in one: it's life insurance (so if something happens to you, your family gets money), AND it's a savings account that grows over time.

You pay a monthly premium. Part of that premium goes toward the death benefit (the money your family gets). Part goes to fees. And part goes into a savings account that builds up over time without being taxed on the growth.

After a few years, that savings account gets big enough that you can actually borrow money from it if you need it, or you can take some out. It's like having a safety net.

The downside: It costs a LOT more than regular life insurance. You might pay 5-15 times more. So you have to decide if the savings account feature is worth that extra cost.

It's usually useful if you want to keep life insurance for your whole life (not just while you're paying a mortgage), you've already maxed out your RRSP and TFSA, or you want money to pass to your family with minimal taxes.

Best For

  • Estate planning
  • Business succession planning
  • Tax-efficient wealth transfer
  • High net worth individuals

Key Benefits

  • Lifetime coverage
  • Tax-deferred growth
  • Tax-free policy loans
  • Tax-free death benefit

Ready to Explore Cash Value Life Insurance?

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