Tax sheltering opportunities, such as Registered Retirement Savings Plans (RRSP) and Registered Pension Plans (RPP), are limited. Many people are seeking ways to grow assets in a tax-efficient way in a non registered environment. The Insured Retirement Strategy may be an ideal solution for people who have maximized their RRSP and RPP contributions, and are looking for other tax-efficient ways to save for retirement. This strategy is commonly called "Leveraging”.

Tax Deferred Growth Now Tax-Free Income When You Need It
Leveraging is a financial strategy which uses a universal life insurance policy to provide for:

  • Tax-deferred accumulation of funds today;

  • Tax-free access to those funds in the future (at retirement); and,

  • Tax-free proceeds for your estate at death.

How does Leveraging Work?
In financial terms, leveraging involves borrowing (from a lending institution) by using the accumulated value of a universal life insurance policy as collateral for a loan. The accumulation period is at least 15 years. At retirement, when an income stream from the life insurance policy is required, you would arrange to take a loan from a lending institution. Interest on the loan may be capitalized or paid at the lending institution’s or your discretion. If it is capitalized, the accumulated loan balance will not be allowed to exceed the loan-to-cash value threshold of the policy that has been assigned as collateral. Upon the death of the life-insured, part of the insurance benefit is used to repay the loan and the balance is paid tax free to the beneficiary or estate.

Issues to Consider
Leveraging isn’t for everyone. It’s important to have a long enough time horizon to accumulate enough cash surrender value in the life insurance policy in order to generate the income you require. Also, loan rates, cash surrender values, future changes to the Income Tax Act are just a few of the items which may impact the suitability of the insured retirement strategy for you. There are decided advantages to using the Insured Retirement Strategy. For more information about the opportunities and considerations, please contact your BMO Nesbitt Burns Investment Advisor who will refer you to an Estate & Insurance Advisor (in Quebec, Financial Security Advisor) from BMO Nesbitt Burns Financial Services Inc.