F.A.Q.

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F.A.Q.

1. What are the advantages of acquiring a US life insurance policy versus a Canadian Life insurance Policy?

The first advantage is the lower cost of insurance. In many cases, the mortality charges can be 20% to 30% less in the US, relative to Canada.

The second advantage of a US policy is the higher minimum guarantee cash value and the minimum guarantee death benefit for equivalent premium. In many cases, the guarantees can exceed the Canadian equivalent by 50% to 100%.

A third major advantage with US policies relates to wealth accumulation relative to Canadian policies. This has been outlined in question 4.

A fourth advantage is that there is more competition in the US, and consequently, medical underwriting is far more competitive and reasonable. As a result, declined or highly rated policies in Canada can be underwritten in the US with more favourable results.

2. As a Canadian resident, am I eligible to purchase a US life insurance policy?

Yes, as a Canadian, you are eligible to purchase and acquire a US life insurance policy.
It is critical that the proper setup of the policy from both the underwriting and the ownership structure be properly executed.

3. Will a US policy maintain all of the benefits associated with a Canadian Life insurance policy?

The residence of the insurer is not relevant in determining whether an insurance policy constitutes a life insurance policy within the meaning of the Income Tax Act. Accordingly, an insurance policy issued by a non-resident insurer can constitute a life insurance policy for the act. As such, a US policy should qualify as a tax-exempt life insurance policy for Canadian tax purposes. An ongoing annual assessment by a qualified third-party actuary should be completed to ensure that the US policy remains compliant for Canadian tax purposes. The accumulating cash values will therefore grow annually on a tax-free basis; there will be no income to report for tax purpose; and the death benefit will be paid out tax-free.

At Succession Global, we ensure that the annual review is completed as part of our
services.

4. With regards to accumulating wealth within a tax-exempt policy, do US insurance companies offer advantages?

There are two significant advantages to building wealth in a US life insurance policy. The first notable advantage is with management fees; in Canada, the management fees can be as high as 3 or 4%, whereas, in the US, the management fee is typically zero (0) in most cases.

Coupled with the lower cost of insurance, a US policy over time can potentially accumulate double the cash value of a Canadian life policy, for equivalent premium.

The second significant advantage is the complete downside investment protection offered by many US policies. For example, if the chosen index loses 20% in any given year, in Canada, your portfolio will lose 20% of its value, whereas, in the US, your losses are zero (0).

5. Are there any setup costs or special requirements for a Canadian to own a US life insurance policy?

There is a requirement to set up a compliant structure to acquire and hold the US policy. The setup costs, including Actuarial fees, in the first year can range from $10,000 to $15,000 CAD. There are also ongoing Administrative fees and Actuarial Review fees to ensure the US policy remains Canadian tax- compliant. The client can expect annual fees of approx. $5,000 CAD.

6. Who are the ideal candidates for a US life insurance policy?

An ideal candidate should have investable assets of 1 million dollars or a net worth of
5 million dollars or greater. They are typically business owners, individuals with significant real estate holding or professionals and executives looking to build retirement wealth. Their objectives may include tax-deferred wealth accumulation or estate and succession planning.

Leaving a legacy is often an important goal of High Net-Worth (HNW) individuals, and US life insurance policies are ideal vehicles for maximizing charitable gifting.

Finally, life insurance is one of the most effective ways for private corporations to achieve their objectives of final taxes, estate equalization objectives for families, and sheltering passive income within the corporation.

7. There are concerns expressed about Canadians acquiring US life insurance policies. Should I be concerned?

The main concerns expressed relate primarily to the proper structuring of the US policy. It is paramount to ensure that the US policy meets all of the requirements of Canadian regulators to remain tax-exempt and maintain all of the benefits of a Canadian life insurance policy. At Succession Global, we manage and oversee all aspects of the insurance acquisition and underwriting process, including helping our clients identify their needs and the best insurance solution for their specific circumstances.