Wealthy Canadians can access life insurance cash value tax-free through strategies like insured retirement plans, where a bank lends against the policy as collateral. The tradeoff: you give up some control, and withdrawals above the adjusted cost basis trigger taxes. A financial advisor can explore options that let you keep more control of your policy.
One of the number one things that I get questions about is around the tax game. So Nelson's book and what people can do in the States versus what you can do in Canada, there's some differences there. And so one of the number one questions is, hey, can I access money tax free, you know, using this process? The answer is, it depends. Potentially there is an option for Canadians that allows you to do this, but to utilize that option, it means you have to give up some control over the policy and you might have to jump through some hoops as part of the process. My recommendation is that we need to focus on increasing our knowledge so that we need to start learning all the different areas and ways that we can minimize tax, starting now, not waiting until the time comes when we got to start pulling the money out. So you should always be focused on learning new information around that there will be a taxable event in the policy itself because it gets very, very efficient. And when it gets so efficient, when we go to access capital by way of a policy loan, anything that is over and above what's known as you can see here on the screen, so the adjusted cost basis line, that can create a taxable event. And so that will happen in pretty much any policy because they're very efficient when we design them. Now the way you can get around that if you want, which is a choice you get to make, is you can utilize something, there's a few different terms, insured retirement plan, you can Google that, that's one option or it's also often referred to as a preferred retirement solution. These are just buzz terms. All that means is you're going to go see a third party bank and then you're going to say, hey bank, look at this unbelievable life insurance policy I have. With this massive chunk of cash value, I'm eventually going to die and this will pay out. Do you want to give me an operating line of credit with this as collateral? So that is extremely common. A lot of people do that and it's very predominantly described as like the go to solution in Canada. I personally don't think that it is always the best solution. It is an option, we should know about our options. But rather I would want people to start rethinking and thinking about how they can not give up control the policy and they can create a similar environment without that. So that's a discussion that, you know, definitely is more of a one on one kind of get into the nitty gritty stuff.
