Although you may have accumulated wealth and paid off your loans by the time you have attained retirement age, life insurance coverage serves various purposes for an individual aged 60 years and older. While buying life insurance at a younger age helps cover education loans, home loans, childcare, and so on, getting coverage in your retirement age gives insurance a new meaning. Life insurance coverage can serve as:
A tool for tax planning: The common perspective about life insurance is that its sole purpose is to provide cash in the form of a death benefit when the insured passes away. However, there is much more to life insurance that most individuals are unaware of. Whole life insurance can be an effective tool for tax planning. Whether the policy is held personally or corporately it can help you better plan your taxes. Here is how:
Personally owned whole life insurance: Certain life insurance policies (generally participating insurance policies i.e., whole life policies) accumulate cash in a tax-sheltered environment. Quite often this can be missed out from an investor’s portfolio due to a lack of information about the ‘tax-exempt’ status of life insurance. If you are an investor and have maximized your RRSP contribution, investing in a whole life policy could be beneficial as the cash that grows within the policy is not subject to taxes during your lifetime. This also helps maximize the wealth in the long term.
Corporately owned whole life insurance: Generally, excess funds in the business stay trapped in the corporation and attract high taxes, irrespective of how they are invested. However, with tax-exempt life insurance, corporations can invest surplus funds into a tax-sheltered policy and allow it to grow to be ultimately passed over to the heirs in a tax-effective manner. An instrument for the creation of an inheritance for your loved ones: In general, life insurance can serve two purposes - either to create an estate for your inheritors or to preserve your existing estate so that your loved ones can fully benefit from the inheritance without having to worry about outstanding mortgages and taxes. Affordable monthly premiums can help you pass on a large amount in death benefits when you pass away – thereby allowing your loved ones to inherit a tax-free lump sum amount. Apart from several other uses like supporting a lifestyle, this lump-sum amount can also be used to pay your income tax and other estate taxes due and thereby help to preserve your estate and ensure your family inherits more assets than liabilities.
Financial protection for your family: The most common reason to apply for life insurance coverage is to financially protect your loved ones – this holds true even when you get life insurance coverage in your twilight years. Even if all your debts and mortgages are paid off, the death benefit can help pay for final expenses and even lessen financial burdens on your family, in the form of providing payment for your grandchild’s education or supporting your children’s lifestyle if they choose to take time off from work in the face of grief. The death benefit can even be used to fund a charity of your choice and continue your legacy for a social cause that you hold close to your heart.