A big myth about life insurance is you don’t need it if you have significant assets which are projected to grow during your lifetime. This isn’t true. Permanent insurance can be a tax-efficient, alternative asset to traditional investments like stocks, bonds, private investments, and other investments.

In fact, the Insurance Act of Canada has provisions for life insurance exempt from tax. As a policy accrues with cash values, there are no taxes that erode those growing values on an annual basis, as with an interest investment.

Historically, life insurance has attractive returns with little or no risk. Whole-life policies, in particular, are good. These policies are safe investments with higher growth than GIC’s and other fixed income options, and have steady returns vested by the policy owners. This means they never decrease in value, unlike investments tied to the markets.

When the S&P index lost 38.49% in 2008, par whole life policies – which let you participate in the insurance companies’ operating and investment profits – paid an average of 7.71% to policy holders! The tax-free investment component of the policy invests in long-term, government infrastructure (i.e., airports, roads, commercial real estate, wind and timber farms), as well as equities and long-term bonds much like a pension fund.

Using insurance as an alternative asset in your investment portfolio can be a tool to pay estate taxes with pennies on the dollar. It can also create a tax-savings accumulation vehicle that grows tax-free and that allows multiple options for accessing the capital which is liquid.

This is one of the only investments in Canada that can be funded corporately and accessed by the corporation the day it is set up, and still allow the businesses and shareholders access to the money without paying taxes. Insurance can also be used as a cost-effective, tax-efficient tool for estate planning, as it eliminates potential family feuds stemming from the division of assets at the death of Mom or Dad.

In addition, life insurance can be structured to allow control from the grave through a guaranteed, tax-free, term annuity. This is a good idea if one child isn’t as responsible as the other siblings/shareholders. If set up properly, the insurance plan is protected under the Insurance Act of Canada and, thus, is private and protected from creditors.

It is a good idea to speak with financial experts and insurance advisors to see if a policy makes sense, especially if you have savings or extra income you don’t need for lifestyle purposes. And also if you invest cash in GIC’s or other taxable investments, and earmark these investments for your heirs.

By replacing taxable investments with life insurance, you increase funds available to heirs when you die and reduce tax you pay today and in the future. The bottom line? You have more money while you are alive and increase the inheritance your children receive later. And all by using this unique insurance as an alternative investment.