This article is the third in a 4-part series about how life, health and wealth solutions can help create a powerful retirement plan.
When you talk with clients about retirement planning, your conversations likely cover savings, investments, income and expenses. But what about financial protection, being prepared for unexpected situations and ways to leave a lasting legacy?
The right type of life insurance policy and appropriate amount of coverage can help clients:
- preserve their estate,
- efficiently transfer their assets, and
- fulfill their legacy wishes.
“Life insurance is an important part of legacy and estate planning,” says Sun Life Financial’s Vineet Kochhar, vice president, insurance solutions, individual insurance and wealth, of the ability of permanent and term insurance to help clients fulfill their financial objectives and final wishes.
Legacy wish list
Estate preservation – Many Canadians work hard to accumulate assets for retirement. And many may hope to leave a legacy. Yet the final value of their estate might not be as much as they expect. Taxes on an estate at death can consume a significant portion of a client’s legacy, leaving less for their heirs. In fact, depending on the province a client lives in:
- registered assets may be taxed up to 54% (depending on the province and top marginal tax rate), and
- capital gains on assets like a cottage or vacation property can be taxed up to 27%.1
That’s where life insurance solutions come in. Life insurance proceeds can help provide a cost-effective way to pay a client’s liabilities at death. This can help ensure their hard-earned assets go to loved ones, according to their wishes. It may also ease stress during a time of grief. What’s more, these proceeds could help cover taxes triggered at death, such as capital gains on investments, a cottage or vacation property.
Planned giving – When clients want to leave a financial gift to an organization, life insurance is one of the few tools that provides beneficiaries with a tax-free payment. When a charity is the beneficiary of a life insurance policy owned by an individual, the charity will issue a charitable receipt to that person’s estate for 100% of the death benefit received when they die. The proceeds of the policy will count as a charitable donation on the client’s final tax return, prepared on the client’s behalf by executor.
Using life insurance for planned giving can help clients make a more substantial donation than they may otherwise be able to afford, without affecting other estate planning goals.
Debt repayment – Life insurance can also help address personal debt. According to a Statistics Canada study2 released in April 2015, 70.3% of Canadians ages 55 to 64, and 42.5% of Canadians 65 and over have debt, representing a 55% increase since 1999. This means that close to half of all Canadians will have some form of debt in retirement — including clients who may need your help to:
- learn how their debt will affect their retirement income and legacy plans (plus the fact that creditors will seek payment from their estate before beneficiaries have access to it),
- create a debt repayment schedule, and
- explore life insurance as a means to pay off creditors as well as final expenses.
Life insurance solutions
Permanent life insurance — including whole and universal life — is commonly associated with estate and legacy planning, helping clients preserve and transition their wealth to the next generation. Permanent policies offer:
- lifelong protection from the financial impact of their death,
- the opportunity for tax-preferred cash value growth, and
- tax-free payment to beneficiaries.
And for those clients looking for additional short-term protection to cover debts, term insurance can provide an additional cost-effective layer of protection, helping them ensure their estate transfers intact to their beneficiaries.
Part of a powerful plan
Life insurance can help clients create a powerful estate and legacy plan. For more information about life insurance solutions and strategies to protect clients’ families and assets, contact a Sun Life sales director.
This article is the third in a 4-part series. Read How life, health and wealth solutions can help create a powerful plan and The value of critical illness insurance in retirement and watch for an article next month on wealth solutions in retirement planning.
1 Based on the top marginal tax rate in Nova Scotia for 2017
2 Statistics Canada, Study: Changes in debt and assets of Canadian families, 1999 to 2012