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Achieve your financial goals with the help of a return of premium rider

Critical illness insurance can be a vital part of your financial security plan if you’re diagnosed with a condition such as a heart attack, stroke or life-threatening cancer. If you are diagnosed with a covered critical condition and satisfy the survival period, the benefit you receive can help you deal with unexpected expenses, meaning you are less likely to dip into your existing savings to meet unexpected expenses.

But what if you don’t develop a critical illness?

Many critical illness insurance policies allow you to add an optional return of premium rider that rewards your continued good health. This return of premium rider could help you recoup some or all of the eligible premium paid if you never make a claim.

Here’s how it works.

Eligible premiums are returned if you don’t make a claim

If you remain healthy and have a return of premium rider, all or a portion of the eligible premium paid is returned.

Returned premiums can be used to supplement retirement savings

If you don’t make a claim and you receive a return of premium benefit, the money you receive can be used to fund investment strategies as you near retirement. So, while the premiums are typically higher on a policy with a return of premium rider, you can invest the amount of premium returned under the rider.

Most people never prepare for a critical illness

Deciding to include critical illness insurance in your financial security plan is an important way you can reduce financial risk and help protect your savings. Adding a return-of-premium rider can help you continue to protect those savings and help fund your financial goals.

I can help you tailor your coverage by discussing the various return of premium options that may be available to you. Set up a meeting today to put plans in place to reduce your financial risk if you suffer a critical illness.

*The CRA generally accepts that CI policies providing no Return of Premium (ROP) are accident and sickness policies. The CRA has not provided its view regarding the tax treatment of CI polices containing ROP benefits. The taxation of optional ROP benefits is subject to interpretation by the CRA.

The Canada Revenue Agency and Revenue Quebec have not provided a formal ruling confirming that policies which include return of premium benefits are accident and sickness insurance for income tax purposes. The tax treatment of optional return of premium benefits is subject to interpretation.

Consider insurance options when planning for your retirement

With concern about the availability of funds from government-assisted retirement programs, many Canadians are taking retirement planning into their own hands. While conventional registered retirement savings plans (RRSPs), pension plans and tax-free savings accounts are popular planning options, most individuals don’t realize permanent life insurance can also help them achieve their retirement goals.

You may be constrained by RRSP limits

RRSP limits allow you to defer taxation on up to 18 per cent of eligible earned income, but only up to the maximum prescribed in the Income Tax Act. If your income is in excess of the maximum prescribed threshold, or if you’re in a pension plan, your RRSP contribution room is often restricted. You may be looking for additional retirement saving options.

The opportunity

Besides providing your loved ones with a safety net in the event of your premature death, some types of life insurance can also be used to enhance your retirement income. By purchasing a permanent life insurance policy with cash value, you can benefit from the opportunity of tax-advantaged cash value growth within the policy. The policy’s cash value can later be accessed to provide you with additional funds during retirement. And, your loved ones can receive a tax-free payment at death from the remaining death benefit.

Under current income tax legislation, a permanent life insurance policy is exempt from annual income taxation on the growth of policy values, provided certain conditions are met. Withdrawals from the life insurance policy cash values are subject to taxation based on the rates and laws in effect at the time you withdraw the cash value.

When the time comes for you to access the policy’s cash value, you have choice. Generally speaking, there are three approaches to access your cash value:

Collateral loan
Partial surrender of cash value
Policy loan

The approach that may be right for you depends on your circumstances. Each of these methods has its own tax implications, based on the rates and laws in effect at the time the policy cash value is accessed.

Find out how you can take control of your retirement dreams with permanent life insurance. I can provide more information on how to optimize your retirement income.

This article is for information purposes only and shouldn’t be construed as legal or tax advice. Every effort has been made to ensure its accuracy, but laws and interpretations may change, therefore errors and omissions are possible. All comments related to taxation are general in nature and are based on current Canadian tax legislation for Canadian residents, which is subject to change, for implications as they relate to individual circumstances, consult with legal or tax professionals.

Information is provided by London Life Insurance Company and is current at June 2010.

Martin Boileau, B.A.A., L.Sc. Compt.

Financial security advisor

Investment Representative

Group insurance and group annuity plans advisor

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