Universal Life for Active Investors
How an IT contractor used universal life insurance to tax-shelter corporate investments while maintaining active control over investment selection
Important: Insurance & Segregated Funds (Not Mutual Funds)
This case study discusses investments within a universal life insurance policy. These investments are segregated funds, which are regulated under the Insurance Act, not the mutual fund regulations. Segregated funds differ from mutual funds in their regulatory framework, creditor protection features, and tax treatment. This case study does not discuss or compare mutual funds offered through WhiteHaven Securities Inc.
Client Profile: Samuel
Background
Profile
IT contractor, database developer
Investment Knowledge
Solid, enjoys active management
Personal Strategy
Continues active trading in RRSP
The Challenge
The Problem
Active trading triggered capital gains, tax-inefficient
The Need
Tax-shelter investments in holding company
The Requirement
Maintain active control over investment selection
The Goal
Choose specific ETFs aligned with investment thinking
The Solution
Product
Universal life insurance
Cost Structure
Yearly term cost structure
Tax Efficiency
Tax-sheltered growth
CDA Benefits
Nearly 100% of death benefits credited to CDA
Key Benefits
Active Control
Choose specific ETFs and investment funds
Tax-Sheltered
No annual tax on investment growth
CDA Credits
Tax-free distribution to beneficiaries
Ongoing Management
Monitor and adjust investments over time
The Approach: Universal Life with Yearly Term Cost Structure
We selected a universal life insurance contract with yearly term cost structure, allowing large amounts of money to be invested early on with low initial costs
Why Universal Life Instead of Whole Life?
Universal life was chosen specifically because Samuel wanted:
- Active management control: The ability to select specific ETFs aligned with his investment thinking
- Investment flexibility: Options to choose from various investment funds available within the policy
- Ongoing decision-making: The ability to monitor and adjust investments over time
Whole life offers stability and predictability, but it doesn't offer investment accounts or decision-making ability. For an investor like Samuel who has solid investment knowledge and wants to actively manage his investments, universal life was the better fit.
Company Selection Process
We conducted a detailed comparison of 7-8 insurance companies and their universal life variations. This was a data-driven comparison with:
- Detailed illustrations comparing values at 10, 15, 20, and 30 years
- Comparison of investment options available within each policy
- Analysis of fee structures
- Evaluation of how each company manages the "side account" (maintains tax exemption status)
The Benefits: Tax Efficiency and Control
Tax-Sheltered Growth
Investments within the universal life contract grow tax-sheltered. No annual tax on investment growth, no capital gains realized until death, more capital available to compound over time.
CDA Benefits
Nearly 100% of death benefits credited to the Capital Dividend Account, allowing tax-free dividends to be paid out to beneficiaries.
Active Investment Control
Unlike whole life, universal life allows you to choose specific ETFs, monitor and adjust investments over time, and make active investment decisions.
Key Takeaways
What this case study demonstrates
Active Control
Unlike whole life, universal life allows you to choose specific investment options and make active investment decisions within the policy.
Tax-Sheltered Growth
Investments within universal life grow tax-sheltered, which can significantly improve long-term outcomes compared to taxable portfolios.
CDA Benefits
Nearly 100% of death benefits are credited to the CDA, allowing tax-free distribution to beneficiaries, which can improve after-tax outcomes.
Explore Universal Life Options
If you have significant accumulated profit in your holding company and want to tax-shelter investments while maintaining active control, consider discussing universal life insurance as part of your estate strategy.
Important Disclosure
This case study is illustrative only and not a substitute for professional advice. All client names and specific identifying details have been changed to protect confidentiality. This is an illustrative example of process and approach, not a guarantee of outcomes.
Every situation is unique. Insurance products, fee structures, investment options, tax outcomes, and policy performance depend on many factors including age, health, corporate structure, tax rules, investment performance, and insurance company policies. What worked in this case may not be appropriate for your circumstances.
Investment performance is not guaranteed. Investment options within universal life policies are subject to market risk, and investment performance will vary. Past performance does not guarantee future results.
Insurance is offered through iAssure Inc. Insurance products and related services are provided through iAssure Inc., an independent firm in the insurance of persons and in the group insurance of persons. These activities are neither the business nor the responsibility of WhiteHaven Securities Inc.