I have a life ot death question I got a phone call from Investors Group, spoke with them in person and they suggested the following life insurance product. This life insurance is offered by Canada Life and is called : Participating Life Insurance - Wealth Achiever
This is what they told me: The main benefit of that product is that all the investments made are tax deductible and not taxable when withdrawn(kinda like a TFSA but no 5000$ limit) However if i commit to a certain amount per month and need to make the payment otherwise there are penalties (getting smaller the closer you get to 20 years).
The example they gave me, If i put 25 000$ a year (way to much for me btw) in 20 years i can withdraw ~ 620 000$ tax free, and every year after that the amount was considerably higher. Basically, i get a 120 000$ return with 500 000$ after 20 years. That's good but the every year tax deduction is what attracts me the most.
I'll get a call within a week to buy that insurance, but since i find it to good to be true, i'm starting to have doubts.
Any useful imput would be appreciated.
This is a great question.
Participating Insurance is "permanent" insurance wherein the growth of your investment is participating in the performance of the insurance company.
THERE ARE NO TAX DEDUCTIONS FOR LIFE INSURANCE DEPOSITS..is that clear?
However, the invested value will grow on a TAX-DEFERRED basis, NOT TAX FREE.
If you withdrawal the funds, all the growth will be taxed to you as income...OUCH!!
IN order to access your funds in a "Tax free" way (as they say), then you need to obtain a loan against the value of your policy...this loan is NOT GUARANTEED and the amount of the is also NOT GUARANTEED.
Read this article on permanent insurance (sometimes called Universal Life or Whole Life)...HERE
If you don't fit the criteria, then stay away. From what you have posted so far, your are very misinformed by the advisor or not yet understanding the product. Make sure you completely understand what you are getting into before giving them any money.
don't get sold on RATE of RETURN...it is not guaranteed.
One more thing....
PERMANENT INSURANCE (like the one you're proposed) IS A TAX DEFERRAL MECHANISM...ONLY PROCEED WITH THE GO AHEAD OF A TAX PROFESSIONAL...your accountant, not a sales person.
Don't be afraid to get a second opinion from an independent advisor that you trust.
All the best.
