There are life insurance policies offered with interesting tax-planning advantages. Legal tax exempt rights are allowed in our tax legislation in relation to life insure, which allows the possibility to accomplish the following.

• Premiums over and above the associated costs of insurance, and premium tax are invested and can accumulate tax-deferred within certain plans.
• Tax-deferral of the investments continues until such time that withdrawals are taken from the policy.
• Tax is avoided on both the face amount of the insurance, plus any ongoing cash accumulation in the policy, when paid out to the beneficiaries on the death of the insured. Thus, tax is permanently avoided, after the insurance costs prefunding any estate liabilities have been paid out of tax-free dollars within the plan.

Here are some uses within an estate:

• Final tax liabilities in an estate such as on capital property or on the remaining RRSP/RRIF value is taxed fully as income and can be pre-funded.
• In some cases, tax exempt plans can be used as a pledge to secure a loan that can be used to create additional cash flow in retirement. Cash resulting from a loan is not taxable. Where the loan is later paid from the death benefit, payment can be deferred until death. Repayment of the loan is thus partly repaid using pre-taxed dollars.