Expert Bloggers

Putting the Insured Deposit Fund to Work for
Your Business and Your Family

By Peter Richards, Wealth & Legacy Advisor, Peter Richards Advisory Group
www.peterrichards.ca

LIFE INSURANCE, OR the Insured Deposit Fund as investment advisors call it, is an often misunderstood but very valuable tool for business owner wealth planning.

It can be used in many effective ways when integrated with detailed planning, and the following details some of the ways in which Canadian business owners can take advantage of its power.

Transitioning Assets to Future Generations

Some families have more wealth and assets then they need for their lifetime. Typically, in the absence of efficient planning, tax liability can be a significant issue when assets change hands and move from one generation to the next. When the next generation is insured by the current stakeholders, life insurance can create an opportunity to move assets from one generation to the next tax free.

Paying for Taxes upon Death

Life insurance is an effective tool to provide cash at the time of death to satisfy a tax liability because it pays out tax free upon the death of the insured. In addition, in cases in which there is exposure to U.S. or other foreign estate taxes, it can sometimes be more cost effective to use life insurance to pay those taxes rather than implementing more complex and expensive structures.

Gifting of Shares

It is possible to donate private company shares to charity upon the death of a shareholder, and by using life insurance it is also possible to redeem bequeathed shares to provide cash to the charity. This strategy results in an elimination of tax on the private company shares on death, greater value left to the heirs of the deceased’s estate and cash in the hands of the charity.

Tax-efficient Accumulation

Assets inside an insurance policy can accumulate free of annual income tax, and this sheltering can allow for greater accumulation over time than when using comparable vehicles. Accumulating part of your safe investment portfolio inside an insurance policy will allow you to shelter what might otherwise be highly taxed interest income.

Return on Investment

Canada’s major life insurance companies offer whole life policies which have stable, consistent returns in the form of dividends paid on the growing balances inside the policies. The low volatility of returns, along with the tax-free payout of these amounts upon the death of the insured, can create attractive internal rates of return when comparing to self-funding or other taxable plans.

Cash for a Rainy Day

Finally, business owner families recognize they have an accumulation of cash inside their insurance plans that can be accessed as cash flow for any need if they so desire. The lifeboat funds can be withdrawn directly from these policies, but it is also common to borrow against the policies as the banks favour them as collateral and it is more tax efficient. There also may be deductibility if used for a business purpose.


Peter Richards is a Wealth & Legacy Advisor at Peter Richards Advisory Group. Established in 2008, Peter Richards Advisory Group is dedicated to helping business families ensure their wealth remains intact. Clients describe Peter and his team as experts at integrating personal and corporate wealth, and identifying unknown problems. They ask thorough and tough questions in order to connect numbers to vision and values. The result is a significant positive impact on wealth. Peter can be reached at peter@peterrichards.ca.