Insurance policy as an investment

Q – As an avid investor, I pay particular attention to my investment portfolio. I am looking at purchasing a life insurance policy as an investment. Do you recommend this? – Lyn H., North York

A – There are many types of life insurance policies. “Term-life” policies, for example, offer pure protection – there is no investment aspect. However, you may be able to use a “universal-life” insurance policy to provide protection, grow your investments, and pay less tax. Very basically, this type of policy is known as a “permanent” life insurance policy, meaning you pay premiums on a monthly basis for a specific period of time, and the money pays for both the insurance component and an investment component. Upon death, your beneficiary will receive the amount of the insurance policy tax-free. The major advantage to this type of investment strategy is that you have control over the investments.

Insurance companies offer a large variety of investments to choose from, and the policy is tax advantaged. When you are ready to withdraw money from the investments held within the policy, the cost base is equal to the sum of all your premiums – the amount used for both the insurance and investments. This will increase your cost base, so you will pay less tax once you sell your investments within the Universal Life insurance policy.

This type of insurance policy might be suitable if you are looking for three types of solutions in one product: grow investments; save tax; and purchase life insurance. However, it’s important that you speak with both your financial advisor and a licensed insurance agent – the former to see whether this type of strategy fits with your overall plan; the latter, to find the best policy to fit your needs. – R.T.

Robyn Thompson, CFP, is the founder of Castlemark Wealth Management, a boutique financial advisory firm, specializing in customized financial, investment, insurance, and retirement planning. Phone 416-828-7159 or email today to rthompson@castlemarkwealth.com for a no-obligation, no-charge Castlemark Integrity Financial Planning consultation.

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The foregoing is for general information purposes only and is the opinion of the writer. No guarantee of investment performance is made or implied. It is not intended to provide specific personalized advice including, without limitation, investment, financial, legal, accounting or tax advice. Please contact the author to discuss your particular circumstances.