High-net-worth (HNW) individuals in Canada often use life insurance as a strategic financial planning tool rather than just for income replacement. Properly structured life insurance can help preserve and transfer wealth efficiently by covering potential estate taxes, providing liquidity to pay capital gains at death, and preventing the forced sale of illiquid assets such as real estate or business holdings. It can also serve as a tax-efficient vehicle for wealth accumulation, allowing funds to grow within the policy on a tax-deferred basis and pass to beneficiaries tax-free. For many affluent Canadians, life insurance is therefore an essential component of estate, succession, and tax planning. We will look into the various ways HNW Canadians can use life insurance further below.
The term High-Net-Worth Individual (HNW) typically refers to someone with substantial investable (liquid) assets, excluding their primary residence. In financial services, individuals are segmented by their level of wealth and investable assets, which helps banks, private wealth firms, and insurers tailor their offerings.
While definitions vary slightly by institution and region, a person is generally considered HNW once they have $1 million or more in liquid assets. Those below this threshold are often referred to as Mass Affluent, while individuals with significantly greater wealth fall into Very High-Net-Worth (VHNW) or Ultra High-Net-Worth (UHNW) categories.
| Typical Profile / Notes | Liquid / Investable Assets | Total Net Worth (Approx.) | % of Population (Approx.) | Typical Profile / Notes |
|---|---|---|---|---|
| Mass Affluent | $250,000 – $999,999 | $500,000 – $2 million | ~20–25% | Professionals, small business owners, or senior employees accumulating wealth |
| High-Net-Worth (HNW) | $1 million – $5 million | $2 million – $10 million | ~2.5–5% | Affluent individuals seeking professional wealth management and estate planning |
| Very High-Net-Worth (VHNW) | $5 million – $30 million | $10 million – $50 million | ~0.5–1% | Entrepreneurs, corporate executives, or families with diversified holdings |
| Ultra High-Net-Worth (UHNW) | $30 million+ | $50 million+ | ~0.03–0.05% | Family offices, major investors, multi-generational wealth holders |
Now let’s take a look at how High-Net-Worth (HNW Very High-Net-Worth (VHNW), and Ultra High-Net-Worth (UHNW) Canadians can use various life insurance strategies for multiple financial purposes and beyond.
1. Wealth Preservation & Transfer including Tax Planning
High-net-worth (HNW) Canadians can use life insurance as a strategic instrument for estate tax planning and wealth preservation. Upon death, taxes such as capital gains and probate fees can substantially erode the value of an estate. A properly structured life insurance policy provides immediate, tax-free liquidity, enabling heirs to settle these obligations without liquidating investments, business interests, or real estate. This helps ensure the estate remains intact and is transferred according to the policyholder’s intentions.
Life insurance also offers flexible estate planning options. Policies can be owned personally, held in a trust, or designed to benefit multiple heirs, providing control over asset distribution while reducing tax exposure. The policy’s cash value can further be accessed during the holder’s lifetime to supplement income, finance investments, or address liquidity needs—while still preserving core estate value. In this way, life insurance serves a dual purpose: protecting wealth during life and facilitating a smooth, tax-efficient transfer to the next generation.
2. Tax-Advantaged Savings, Investment, and extra tax-free retirement income
High-net-worth (HNW) Canadians can use life insurance as a tax-advantaged savings and investment vehicle. By contributing to a permanent policy such as whole life or universal life, policyholders accumulate cash value that grows on a tax-deferred basis—investment gains are not taxed as long as they remain within the policy. Unlike traditional investments, these funds can be accessed through tax-free policy loans or withdrawals, providing liquidity for new investments, business ventures, or other financial needs without triggering immediate taxation.
This approach also offers greater flexibility and control. Unlike registered retirement accounts, there are no contribution limits or mandatory withdrawal schedules, allowing policyholders to access funds when needed while maintaining core insurance protection. For HNW Canadians, this creates a reliable, tax-efficient source of supplemental retirement income, enhancing long-term financial security and freedom.
3. Infinite Banking and Insurance
Infinite Banking is a financial strategy that allows High-Net-Worth (HNW) Canadians to use a specially designed whole life insurance policy as a personal banking system. By building up cash value within the policy, policyholders can borrow against it for various financial needs (i.e. effectively borrow money from yourself), such as purchasing assets, paying off debts, or funding business ventures. This approach offers several advantages, including tax-deferred growth, uninterrupted compounding, and the ability to access funds without the need for traditional bank loans.
A critical requirement for leveraging whole life insurance effectively is securing a policy at reasonable rates. If premiums are excessively high—often due to health conditions—the strategy may not be viable. It’s also essential to be financially stable with a reliable income stream, as premiums for a substantial whole life policy can be significant. Many advisors recommend allocating up to 10% of your income to maintain the policy and keep it in force.
Equally important is having a strong understanding of the financial mechanics behind whole life insurance and infinite banking. This includes knowledge of concepts such as compound interest, participating policy dividends, and other policy features. Maintaining financial discipline is key to ensuring that the strategy achieves its intended long-term benefits.
Learn more about the Infinite Banking approach here
4. Business Protection & Buy-Sell agreements
High-net-worth (HNW) Canadians who own businesses can use life insurance to protect their business and ensure continuity in the event of a partner’s death or unexpected loss. Life insurance proceeds provide immediate liquidity to fund a buyout of a deceased partner’s share, ensuring that the surviving owners can maintain control without having to liquidate business assets or take on debt. This is particularly important in closely held businesses, where ownership stakes are often substantial and the sudden need for funds could disrupt operations or destabilize the company.
Life insurance also serves as a key tool for funding buy-sell agreements. These agreements legally outline how ownership interests are transferred in various scenarios, and using life insurance ensures that there are sufficient, tax-efficient funds available to execute the agreement as intended.
Beyond ownership transitions, life insurance can also help preserve business value, protect family or key stakeholders, and maintain financial stability. For HNW business owners, integrating life insurance into a buy-sell strategy provides both security and peace of mind, safeguarding the company and the wealth built over a lifetime.
Learn more about the Buy-Sell Agreements and Insurance here.
5. Key Employee Insurance for your Business
Key Employee Insurance, sometimes referred to as Key Person or Key Man Insurance, is a life insurance policy purchased by a company on the life of an employee who plays an essential role in the organization’s performance. This coverage safeguards the business from the financial consequences that may arise if a critical team member unexpectedly dies or becomes unable to work. It ensures that the company has the financial resources to manage the disruption and maintain stability during a transition.
The main objective of a Key Employee policy is to provide funds that help the business absorb the potential financial setback caused by losing a pivotal contributor. Such losses can include a decline in sales, interruptions to day-to-day operations, or the departure of long-standing clients who were closely connected to that employee. Estimating the appropriate level of coverage is not a precise calculation—it generally reflects the projected financial effect the person’s absence would have on the business.
Organizations may use either a Term Life or a Permanent Life policy for this purpose. Many also choose to extend protection to include Disability Insurance or Critical Illness Insurance, since the financial strain may be even greater if the employee becomes seriously ill but does not pass away. Premiums are determined by several factors such as the employee’s age, gender, health, smoking habits, and lifestyle. For disability protection, insurers also consider the person’s occupation, the elimination period, and the waiting period before benefits begin.
Learn more about the Key Employee Life Insurance here.
6. Charitable Giving
High-net-worth (HNW) Canadians can utilize life insurance as a powerful instrument for charitable giving, enabling them to create a lasting impact while optimizing their financial and tax planning. By designating a charity as the beneficiary of a life insurance policy, individuals can guarantee that a substantial gift is made tax-free, even if they lack sufficient liquid assets at the time of death. This approach allows donors to leverage their wealth, potentially contributing far more than would be possible through direct cash donations during their lifetime.
The donation receipt can be applied as a credit against taxes owed in the year of death and/or the preceding year. In some cases, it may also be used to offset taxes payable by the deceased’s estate in a later taxation period. Alternatively, an individual may transfer an existing policy to a charity. While this method can be more complex from a tax perspective, it can provide immediate—and sometimes ongoing—tax relief to the donor.
Life insurance also provides flexibility in philanthropic planning. Premiums can be structured to align with an estate or gifting strategy, and policies can be established to support future commitments, such as endowments or charitable foundations. For HNW Canadians, this approach not only strengthens their legacy and social impact but also offers potential tax advantages, preserves other assets for heirs, and ensures charitable objectives are achieved efficiently. In this way, life insurance serves as a strategic vehicle for combining philanthropy with wealth management.
Learn more about Donating Life Insurance to Charity here.
8. Underwriting High-Net-Worth Life Insurance
Underwriting for high-net-worth (HNW) life insurance differs significantly from standard policies due to the larger coverage amounts and the complexity of the applicant’s financial situation. Insurers carefully assess not only the applicant’s health and lifestyle but also their financial profile, source of wealth, and estate planning objectives. The process is designed to ensure that the coverage requested is appropriate, sustainable, and aligns with both risk assessment and regulatory requirements.
When coverage exceeds typical thresholds—often $5 million life insurance policy to $10 million life insurance policy, depending on the insurer—underwriting becomes more intensive. Applicants may be required to undergo comprehensive medical evaluations, including full blood panels, cardiac assessments, imaging tests, and sometimes stress tests. Lifestyle factors such as travel to high-risk countries, aviation or extreme sports, and occupational hazards are also closely scrutinized. Additionally, financial underwriting may require verification of assets, income sources, and estate planning documents to confirm the legitimacy and necessity of the requested coverage.
For example, a $15 million universal life policy for a business owner may trigger additional tests such as an echocardiogram, a detailed cancer risk assessment, and possibly consultations with a specialist physician.
These thorough assessments allow insurers to accurately price the risk while ensuring that the policy meets the client’s wealth preservation and estate planning goals.
Our insurance specialists bring decades of experience helping high-net-worth Canadians with their insurance needs, guiding them through the complexities of the underwriting process with expertise and care. Complete the quote form on this page to schedule a free, no-obligation consultation and discover how we can help protect and grow your wealth.
