Life insurance the ‘biggest misunderstood financial tool’

by James Burton26 Jun 2019

Life insurance is one of the biggest misunderstood financial planning tools in Canada, according to a senior advisor.

Chris Karram, founder and chief strategy officer at SafeBridge Financial Group, told Life and Health Professional that too many clients see life insurance as literally just that and fail to appreciate the vehicle's potential in terms of tax sheltering and dividends.

He said that with his typical client base of real estate developers, builders, doctors, executives and entrepreneurs, life insurance can often be additionally utilised as a core pillar of their portfolio.

He said: “We look at ways to properly structure a life insurance product or vehicle so we can protect their family today both in terms of tax erosion, in terms of tax sheltering the money inside the policy, and to also protect them for generations to come. We can build long-term wealth from a family generation perspective.

“We’ve got a multitude of different ways of working with clients but life insurance and financial planning is where the conversation starts.”

Karram said he has family market clients who need basic insurance protection but, on the flipside, his private wealth clients are looking for something more creative that’s not on the traditional bank product shelf.

Those who are looking to minimize tax, especially if they have a big income, can use life insurance as a “cornerstone” of their financial situation.

Karram explained: “Most people think of life insurance as just that, consistent with home insurance or car insurance. But life insurance is different.

"It’s a tool that obviously protects your family - and there is no greater way to pass on wealth to the next generation if you have insurance upon death. But what most people don’t understand is it’s been around since 1847 in Canada and it's a product that, when structured properly, because it’s under the Insurance Act, can help shelter money from tax.

“The money that grows inside the policy is tax free and it can be completely creditor proof, so no one can get to that money if something ever happens from a credit perspective. Also, once you receive your annual dividend, that value of your account cannot decrease.”

This, he added, is critical in case a 2008 “were to roll around again” and believes that the vehicle is hugely misunderstood from that perspective.

The other major attraction, according to Karram, is that it has paid a dividend every year since 1848, which makes it the only financial instrument in Canada that’s never failed to pay a profit.

“It’s the juice of the vehicle,” he added. “And the fact that the profit has been paid every single year through the Great Depression, multiple recessions, tech bust and September 11 … that makes it stand out among its peers as an investment grade vehicle because even GICs say, we will guarantee your capital but not your returns.

“When you get really get into the nuts and bolts of a properly structured cash value life insurance policy, the benefit to the individuals can be significant because it can be used for retirement income purposes and used by Canadians as an asset the bank is willing to lend you money on.”