Universal Life Insurance remains one of the best tax shelters available to Canadian investors.
Depending on several factors (like age, smoking status, family history, health, and lifestyle), you can purchase permanent, non-cancellable insurance at a rate that will never increase or a yearly renewable term (YRT) to 100 (your choice) to meet your individual insurance needs.
You can also contribute money to a cash reserve. The government sets limits on how much you can shelter. The bigger the actual pure cost of insurance (the premium) the bigger the amount you can contribute to investments. You can choose the investments to fit your comfort level and risk. Some investments that are available are 100% guaranteed while others are stock and bond market based for potentially higher returns. The proceeds of this cash reserve compound completely tax- free as long as they are not withdrawn from the policy. If they remain until the end and are paid out as a death benefit, they will remain tax-free to your chosen beneficiary. You can even borrow against them at attractive rates, should you desire.
While this remains a great tax shelter for individuals, it is an even better option for incorporated business owners. In many cases, owners can allow their corporation to fund premiums on their behalf.
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