Have you considered life insurance as an asset class?

SPM Financial | Feb 18, 2025

Understanding life insurance as an asset class

When most people think about asset classes, they think of stocks, bonds, real estate, or maybe even cryptocurrency. But permanent life insurance - specifically Universal Life or Whole Life policies - can serve as a unique asset class with distinct advantages that traditional investments often can't match. Beyond providing you with coverage for life (as long as you pay your premiums), permanent life insurance can come with an investment component that allows you to accumulate cash value within your policy.

The potential of tax-advantaged growth

Unlike traditional investments that face multiple layers of taxation – like paying taxes on growth and then again when withdrawing funds or upon death – permanent life insurance offers tax-advantaged growth under Section 148 of the Income Tax Act.1 This means your money can grow more efficiently inside a life insurance policy than in many traditional investment vehicles. Think of it as maximizing returns while minimizing costs.

Who should consider this strategy?

This approach isn't for everyone. Working with an advisor can help you decide if this strategy is right for you. Using life insurance as an asset class may be a good fit if you:

Are a high-net-worth individual
Run a successful corporation
Have excess income or assets that you don’t need for your current lifestyle or retirement goals
Want to maximize your estate's value while minimizing tax exposure

The corporate advantage

Life insurance can also be a powerful tool for business owners, for example:

Your corporation purchases a permanent life insurance policy.
The company owns the policy and pays the premiums.
The cash value of the policy accumulates and grows tax-advantaged within the policy.
When you or the key person insured by the policy dies, the death benefit is paid tax-free to the corporation.
The proceeds can be distributed tax-free to shareholders through your corporation’s Capital Dividend Account.

Having a corporate-owned permanent life insurance policy is a great way to ensure your business will have enough funds to continue operating when you die, while also providing tax-free distributions to your estate and shareholders.

The personal perspective

While using life insurance as an asset class can mean big benefits for business owners, it can also be a good fit for individuals. For individuals, life insurance can:

Reduce your tax burden.
Provide guaranteed protection for your loved ones when you die.
Help you grow your wealth in a tax-advantaged way.
Give you access to the cash value of your policy, if you need it.
Create a more efficient estate transfer. The money goes directly to your beneficiaries when you die, bypassing your estate and avoiding probate (the legal process of distributing your estate).

Investing through life insurance: features and benefits

No matter who you are, here are some of the key benefits that make life insurance an attractive investment option:

1. Capital efficiency

Life insurance can help reduce layers of taxation that can eat away at traditional investments.

2. Portfolio diversification

Life insurance can offer more stable and predictable growth than traditional investments. It’s one way you can add a "safe" component to your portfolio while maintaining potential for growth.

3. Privacy protection

Unlike many other assets, life insurance proceeds bypass probate and stay private.

4. Flexibility and access to cash

Need access to your money? Many policies offer options like:

a. Policy loans. You can borrow against the cash value of your policy, usually at a favourable interest rate. You’ll need to repay the loan plus interest before you die. If you don’t, the amount you borrowed will be subtracted from your death benefit.
b. Third-party bank collateralization. This is also called collateral assignment and happens when you put your life insurance policy up as collateral for a loan. If you die before you pay off the loan, your bank or third-party lender gets some (or all) of the death benefit, until the loan is repaid. After that, the rest (if any) goes to your beneficiaries. If you pay off the loan before you die, it is no longer used as collateral and your lender doesn’t receive any of the death benefit.
c. Policy withdrawals, where you can withdraw some of the cash value of your policy in a lump sum or in payments. Just remember that this will affect the future growth of your policy and lower your death benefit.

Things to keep in mind

Like any financial strategy, there are important factors to consider when using life insurance as an investment asset:

The amount of your premiums, and how long you’ll pay them for.
Your liquidity needs and how quickly and easily you’re able to access cash in your policy.
How policy loans or withdrawals will impact the future value of your policy.
Long-term planning implications – manage your life insurance thoughtfully, just like any other investment. Make sure you’re not draining the value of your policy or letting it lapse.

The bottom line

Life insurance as an asset class isn't just about death benefits. It's about smart financial planning that can help you build and preserve wealth more efficiently. It's a strategy that can help you:

Minimize tax exposure
Maximize estate value
Maintain financial flexibility
Create a lasting legacy

Understanding how life insurance fits into your financial plan is important for making informed decisions about your future. Life insurance can be a powerful tool for creating and maintaining wealth while protecting what matters most.

We can help you take a look at your complete financial picture and determine if incorporating life insurance as an asset class makes sense for your unique situation. Together, we'll create a plan that helps you make the most of every financial opportunity while protecting your legacy for generations to come.

Have you considered life insurance as an asset class?