Using life insuranceLife Insurance Insurance that pays cash to your family or other beneficiary after your death. This can give them income and help pay your funeral and other final costs.+ read full definition can be a taxTax A fee the government charges on income, property, and sales. The money goes to finance government programs and other costs.+ read full definition-effective way to save for retirement – and receive tax-freeTax-free Money that you do not pay tax on.+ read full definition income in retirement. Here’s how it works:
- You make a series of deposits into a universal life insuranceUniversal life insurance A type of permanent life insurance that lets you save up some of your payments (your premiums) in a cash account (the cash value). You can change your premiums any time. The amount your insurance pays will vary based on your premiums.+ read full definition policy, allocating the minimum required amount of your deposit to the insurance premiums and the rest to your investments.
- EarningsEarnings For companies, it’s the money they make and share with their shareholders. For investors, it’s the money they make from their investments.+ read full definition from your investments grow tax free, just like they do in an RRSPRRSP See Registered Retirement Savings Plan.+ read full definition.
- At retirement, you borrow against the policy’s cash value, receiving tax-free payments to supplement your retirement income.
- Upon your death, the life insurance proceeds are used to repay any outstanding loans. Any remaining value goes to your named beneficiaries.
2 key points
- Maximize your RRSP and TFSATFSA See Tax-Free Savings Account.+ read full definition contributions first
- Use a universal life insurance policyInsurance policy A written contract for insurance. It describes how long you are covered, what you are covered for, any part that you have to pay (the deductible) and what you will pay for the insurance (your premium).+ read full definition to increase your tax-deferred savings