Life Insurance for Wealthy Canadians


wealthy canadians life insurance

For most people, life insurance is peace of mind. It is designed to help survivors cope with a sudden financial loss due to the death of a loved one. For wealthy Canadians, a complex portfolio and risky lifestyle makes life insurance more complicated. Rather than just providing peace of mind, it becomes an important part of their overall financial plan.

Canada is currently home to approximately 1.7 million people classified as millionaires. According to The Deloitte Center for Financial Services, this number will increase to more than 2.5 million by the year 2020. Assets belonging to these individuals are estimated to rise from today’s $3.35 trillion to $6.77 trillion.

Life insurance has long been a favourite financial planning tool for wealthy Canadians because it offers a variety of advantages, the main one being ease of liquidity. Other ways the wealthy use life insurance and the huge benefits of having it as part of an asset portfolio include:

  1. Creating an instant pool of cash outside of the insured’s primary investments. The liquidity from life insurance can be a big benefit to the insured’s estate. Other assets such as cottages, business interests and investments might be as easily liquidated.
  2. Asset diversification. Life insurance is essentially risk-free. The money will never be lost or decrease in value. There is virtually no fluctuation. Other assets, such as business ventures and real estate are subject to wide fluctuations, depending on the market.
  3. Planning a family legacy. Wealthy Canadians can use life insurance to create a family legacy for future generations.
  4. Estate planning. Life insurance can be used to offset taxes on the insured’s estate, including tax payable on the death of the second spouse on a RIF, RRSP or investment property.
  5. Debt protection. Life insurance can be used to offset debt from a mortgage or a large business loan.
  6. Business continuity. Life insurance can be used to purchase remaining shares from a business partner or to expand the business, make improvements or upgrade equipment.

Broker Terry Zive has been in the business for over 30 years. In his experience, working on $20-million, $30-million or even $100-million policies is not uncommon.

“In this market you really need to know what you are doing,” said Mr. Zive, president of Toronto-based Zive Financial Inc. “You not only need to understand the nuances of dealing with high-net-worth clients, but you need to understand the technical aspects of securing the coverage. If you make a mistake it can have significant repercussions.”

Plans for wealthy Canadians are unique to each client. A client’s lawyer or accountant will bring Mr. Zive in on a referral basis to help develop the best planning structure for this particular client.

The insurance is more concerned with the client’s health and lifestyle choices. They are also interested in the client’s net worth, level of income and how much of an economic impact the client’s death would create. All of this information must be backed up with solid documentation so the insurance carrier can assess whether or not the amount of insurance coverage requested is justified.

According to Mr. Zive, “Simply because you want to buy it doesn’t mean it’s necessarily available to you.”

Policies for Wealthy Canadians are Complicated

Most millionaires are very health conscious. Many of them will visit private clinics and consult with medical specialists around the world. This complicates and stretches out the underwriting process because reports have to be collected from every doctor the client visited.

The lifestyle of a wealthy person can also create problems. The rich are known to indulge in frequent trips, often to less travelled destinations, buy fast cars and participate in risky activities such as sky-diving, mountain climbing and boat racing. These hazardous situations concern insurance companies, which means that creating just the right policy for a wealthy client can take months.

Carrying such a high-ticket insurance policy, usually in the neighbourhood of $50-million to $100-million, also presents a risk for the company. To alleviate this problem, carriers will find secondary market companies, which means two or three, sometimes more, firms need to approve the application.

But, no matter how complicated creating a policy may be, life insurance will always be an important financial tool for wealthy Canadians. It’s an excellent tax-shelter and easily liquidated.

For more details on how life insurance can benefit you, contact us at 1-866-899-4849 or visit our Term Life Insurance Quote Page.

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