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How can life insurance lending lead to a more lucrative retirement?

August 18, 2021 | Last updated on October 5, 2023
3 min read


Your clients might be looking for multiple ways to fund their retirement. You can help them to find one that’s sometimes overlooked.

When you’re reviewing options, an Insured Retirement Program (IRP) can be a smart approach for some clients. Those who own permanent life insurance often have a built-up cash surrender value in the policy. That has another use too. It can be used as collateral for an IRP line of credit.

Essentially, a client can access the accumulated value within their policy. This line of credit then becomes supplemental retirement income. On top of that, the income stream is tax-free.1

If you sell life insurance, you already know that an IRP can be a critical income tool. If you’re an investment advisor, you may not be as familiar, but making your clients aware of how IRPs work can help open up important discussions about income strategies.

Access 75% of cash surrender value

Over time, some of your clients may no longer need the full value of their life insurance policy for death benefits as they did in the past. Or perhaps they’ve maxed out their RRSP or TFSA.

At Manulife Bank, an IRP is structured as a line of credit based on a percentage of an insurance policy’s accumulated cash surrender value. We can lend up to:

  • 75% of the net cash surrender value under the basic program (which involves more streamlined underwriting); or
  • 90% of the value under the custom program (for select clients; requires more in-depth underwriting).

There is no dollar amount maximum with an IRP. Clients can take lump sum advances as needed and access their IRP line of credit easily – by cheque, ATM withdrawal, direct payment purchase, bill payment, online, or mobile and Interac® e-transfers.2

Because no withdrawal is being made from the life insurance policy itself, no taxes are triggered. At the same time, the cash value within the policy continues to grow tax-free.

Although the IRP is primarily used as supplemental retirement income, clients might also want to apply the available funds to invest at their discretion. That could be another strategic use.

Repayments are open

What happens to the line of credit interest? It’s charged monthly and capitalized, provided the loan remains in good standing. Interest may also be paid monthly, and repayment is open with no penalties.

No payments are due on the loan until the policy is surrendered or the death benefit is paid. Most often, policyholders will tap into the line of credit as needed with no repayments. Upon death of the insured, the policy proceeds, less the loan and interest repayment, pass to the beneficiary tax-free.

Few financial institutions offer this type of lending vehicle for retirement-income purposes. As a bank owned by an insurance company, we have been able to develop novel opportunities.

With an IRP, clients can tap into the cash surrender value if and when needed. That allows them to repurpose the policy for a tax-free source of cash flow during retirement.

You or your clients may have questions about an IRP. We’ll cover the most common ones in the next instalment of this series.

Learn more about Manulife Bank’s IRP line of credit today.

® Registered trademark of Interac Corp. Used under license. 1 Clients should consult their own tax advisors with respect to their specific situation. 2 Fees apply.