Mark Halpern is a trust and estate practitioner and the owner of WEALTHinsurance.com; consequently, bringing these changes to the attention of his clients has been an important part of his work throughout 2016. As he explains, however, the new rules, while significant, won’t completely redefine the value of life insurance products.
“The sky is not falling,” he says. “I have been hesitant to promote the changes as much as I have but I have a fiduciary responsibility to do so. The insurance industry is not going to be out of business on January 1. There still is a lot of business there and great opportunities to utilize tax-exempt life insurance.”
The changes will also affect certain products and certain consumers more than others. Those of a certain age (65+) purchasing participating whole life insurance will be getting basically the same products as the New Year rings in, while younger people purchasing universal life products will have something to consider.
“Universal life insurance will be affected on the cost side – premiums going up, although older ages will not be affected as the younger ages,” says Halpern. “It will also be affected on how much you can overfund a policy. Then the real big change is for corporate insurance purposes. In the past insurance proceeds would be payable to a corporation on a tax-free basis less the adjusted cost base; that won’t be the case after January first as the adjusted cost will never grind down to zero.”
That said, even with the tax sheltering capabilities of life insurance products reduced, the fact remains that they will retain much their allure after January 1, regardless. As an expert in tax and estate planning, Halpern knows better than most the implications of the new rules, and he isn’t too concerned about what it may mean for either the life insurance or advisory businesses.
“We are living in the most taxed time in our history,” he says. “There are very few ways to shelter money in Canada legally, so life insurance is still a very attractive way for wealthy Canadians to mitigate taxation. The insurance companies have been rejigging their products, so everyone is now on the same playing field. There will be some great opportunities for both consumers and advisors.”
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Change is afoot in the life insurance space with new tax exemption rules set to come into effect on January 1. The industry has been governed by the Income Tax Act of 1982, but with longer life expectancy and an ongoing lower interest rate environment the government has saw fit to act.