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Discussion Starter #1
Hi folks

I have been looking to buy life insurance for a while and the above type of scheme caught my eye as it not only provides life insurance but the premiums are invested in the stock market to grow tax free. I haven't settled on any particular provider yet as that's still work in progress but I would like to seek some advice from the experts on this forum and see how popular this product is amongst people who are retired or close to retirement (since aside from the life insurance part the income benefits from investment do not start until the old age).

I am a long way away from retirement but I do not have much in the way of govt. pension (my CPP contributions have not been so great due to various reasons). I do have some trivial savings in TFSA and RRSP but I do not contribute into those pots on regular basis.

The internet is full of conflicting reviews on IRPs but if anyone could guide me in the right direction about their pros and cons that would be highly appreciated.

Thanks everyone for their time and advice!
 

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^ Sorry no advice here.

Only the thread's title caught my eye ... how can you "insure" a retirement plan? And the part about "premiums invested in the stock market as being tax-free"? Ain't premiums supposed to be used/purchase for the insurance plan - presumably life insurance? [And what is the use of such gains when the insurance is exercised? So much investing for "retirement (aka still alive)]

What about the "gains" on the stocks presumably from the remaining invested portion of the premiums? Are those tax-free? I'm having a difficult time seeing the "insured" portion being "invested" in the stock markets as being "tax-free" , keeping mind the only "stock-investments" an insurance-related plan can dabble with are mutual funds so then there're, other questions.

Anyhow ... what is the specific name of the IRP are you talking about, assuming you're not solicting here. Sounds like a complicated convoluted ... whatever IRP is offered by whatever insurance company???? If it's easier to get feedback/input if you can attach a link to whatever you're asking/referring to,.
 

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Discussion Starter #3
^ Sorry no advice here.

Only the thread's title caught my eye ... how can you "insure" a retirement plan? And the part about "premiums invested in the stock market as being tax-free"? Ain't premiums supposed to be used/purchase for the insurance plan - presumably life insurance? [And what is the use of such gains when the insurance is exercised? So much investing for "retirement (aka still alive)]

What about the "gains" on the stocks presumably from the remaining invested portion of the premiums? Are those tax-free? I'm having a difficult time seeing the "insured" portion being "invested" in the stock markets as being "tax-free" , keeping mind the only "stock-investments" an insurance-related plan can dabble with are mutual funds so then there're, other questions.
Great questions will ask my financial advisor. Thanks for the input.

Anyhow ... what is the specific name of the IRP are you talking about, assuming you're not solicting here. Sounds like a complicated convoluted ... whatever IRP is offered by whatever insurance company???? If it's easier to get feedback/input if you can attach a link to whatever you're asking/referring to,.
AFAIK all major banks offer them. I have found some cheaper alternatives in the market but that's still research in progress as I haven't settled on any specific products/providers yet.

My reason to post the question on here was to find out if someone has looked into IRPs and understand the pros and cons.
 

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Insured retirement plan is not a specific product but more of a gimmick with a slightly misleading name. Your retirement would not be insured. You are simply using insurance to fund your retirement. Only your life is insured...not your retirement. That you need to be clear on.

This gimmick can be sold in many different variations but I will attempt to describe how it is sold most times and the problems, issues and fees you will face with each. Most times a universal life (UL) policy is used but not always. A whole life plan can be used as well. UL is better because it is more flexible, more transparent and more competitive. With UL you would own a permanent term policy with a side fund attached to it. So you would have life insurance until you die and you could also fund a tax sheltered side fund inside that policy. I have just described a UL policy. There is more to them but that is the basic idea.

As long as the money stays in the policy there would be no tax on the gains. If you die while this money is still in the policy, both the death benefit and the cash value would be tax free. You, however, are not talking about the risk of dying. You are talking about the risk of living in retirement and needing money. If you access the cash inside the policy BEFORE you die, there will be a taxable disposition. I won't attempt to explain this next part but the tax owed on that withdrawal will not be the tax on the proceeds minus the adjusted cost base, but for the most part you will be taxed on the entire withdrawal as "other income" regardless of how it was invested. It would take another post for me to explain that but trust me, that is how it is taxed. Fully taxed. Very painful.

Now many insurance agents will then say, "don't worry about that because instead of withdrawing it directly we will obtain your retirement income via a collateralized loan with a bank. Doing that and only paying off the loan with tax free death benefits when you die, no tax will be paid".

You may want to read that last quote over again to make sure you understand it but that is basically an "insured retirement plan". Sounds good on paper. Works great for agent commissions. But think about it. Do you really want to build up a massive amount of money inside a policy and the only way you can get at it, without being taxed to death, is to go begging a bank for a loan. Even if they give you one, and they probably will, you better hope they don't mind sitting on that for 25 or 30 or 35 years until you die. If a banker one day decides that this multi-million dollar loan is too much risk and demands you service it when you are not dead yet, what do you do then?

All I can say is that one of the reasons I built up wealth is so I don't have to go begging to anyone for money or hoping someone else doesn't get confused with my plan and mess it all up. In my opinion, IRP is a dumb way to build up retirement funds. It was invented by insurance agents to sell insurance and generate commissions and that is all it really does well. As for the stock market investments. Yes you can invest in various indexes but expect fees in the 2.5% to 3.0% range and I won't get into the cost of all that life insurance over your entire lifetime. Remember there is no fee competition with insurance polices once they are in force. If you don't like the fees its not like you can transfer the cash tax free to another policy. You would have to redeem it all and reinvest it with another company and of course, pay a whack of tax in between. Which you are never going to do. Hence, there is no competition on fees and hence they are very high because of that, inside these plans. Hey, those commissions don't just pay themselves.

Anyway, IRP gets a thumbs down from me. If you need insurance, buy a large temporary term insurance policy (Term 10 or Term 20) for almost nothing, and invest the rest in an RRSP or TFSA.
 

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^ From the insurance expert.

Your first sentence pretty well summed up what I thought, only I would remove the word "slightly".

... Insured retirement plan is not a specific product but more of a gimmick with a slightly misleading name. ..
And the best part I read is:

...Now many insurance agents will then say, "don't worry about that because instead of withdrawing it directly we will obtain your retirement income via a collateralized loan with a bank. Doing that and only paying off the loan with tax free death benefits when you die, no tax will be paid".
... what a double whammed con-job.
 

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Discussion Starter #6
Insured retirement plan is not a specific product but more of a gimmick with a slightly misleading name. Your retirement would not be insured. You are simply using insurance to fund your retirement. Only your life is insured...not your retirement. That you need to be clear on.

This gimmick can be sold in many different variations but I will attempt to describe how it is sold most times and the problems, issues and fees you will face with each. Most times a universal life (UL) policy is used but not always. A whole life plan can be used as well. UL is better because it is more flexible, more transparent and more competitive. With UL you would own a permanent term policy with a side fund attached to it. So you would have life insurance until you die and you could also fund a tax sheltered side fund inside that policy. I have just described a UL policy. There is more to them but that is the basic idea.

As long as the money stays in the policy there would be no tax on the gains. If you die while this money is still in the policy, both the death benefit and the cash value would be tax free. You, however, are not talking about the risk of dying. You are talking about the risk of living in retirement and needing money. If you access the cash inside the policy BEFORE you die, there will be a taxable disposition. I won't attempt to explain this next part but the tax owed on that withdrawal will not be the tax on the proceeds minus the adjusted cost base, but for the most part you will be taxed on the entire withdrawal as "other income" regardless of how it was invested. It would take another post for me to explain that but trust me, that is how it is taxed. Fully taxed. Very painful.

Now many insurance agents will then say, "don't worry about that because instead of withdrawing it directly we will obtain your retirement income via a collateralized loan with a bank. Doing that and only paying off the loan with tax free death benefits when you die, no tax will be paid".

You may want to read that last quote over again to make sure you understand it but that is basically an "insured retirement plan". Sounds good on paper. Works great for agent commissions. But think about it. Do you really want to build up a massive amount of money inside a policy and the only way you can get at it, without being taxed to death, is to go begging a bank for a loan. Even if they give you one, and they probably will, you better hope they don't mind sitting on that for 25 or 30 or 35 years until you die. If a banker one day decides that this multi-million dollar loan is too much risk and demands you service it when you are not dead yet, what do you do then?

All I can say is that one of the reasons I built up wealth is so I don't have to go begging to anyone for money or hoping someone else doesn't get confused with my plan and mess it all up. In my opinion, IRP is a dumb way to build up retirement funds. It was invented by insurance agents to sell insurance and generate commissions and that is all it really does well. As for the stock market investments. Yes you can invest in various indexes but expect fees in the 2.5% to 3.0% range and I won't get into the cost of all that life insurance over your entire lifetime. Remember there is no fee competition with insurance polices once they are in force. If you don't like the fees its not like you can transfer the cash tax free to another policy. You would have to redeem it all and reinvest it with another company and of course, pay a whack of tax in between. Which you are never going to do. Hence, there is no competition on fees and hence they are very high because of that, inside these plans. Hey, those commissions don't just pay themselves.

Anyway, IRP gets a thumbs down from me. If you need insurance, buy a large temporary term insurance policy (Term 10 or Term 20) for almost nothing, and invest the rest in an RRSP or TFSA.
Hey thank you so much for the time to write such a detailed reply. All of what you have said is in line with that I found through my own research or was informed of by the agent.

So the agent who is selling this product has also been my business accountant for several years and I consider him to be an honest guy which is why I considered the idea when he first presented it. Tax wise his advice has always been phenomenal which has helped build my trust through all these years. Coincidentally he also happens to be a relative of a close friend and my friend has told me that he signed up all of his children and some siblings for IRP so this lead me to think that his product must be authentic. Anyway, this could all be useless information to you but the personal connection was the driver behind my thought process as I wouldn't usually give a random "financial advisor" time of the day.

TFSA wise, it is very well possible that I may leave Canada for a few years to work abroad (this may happen very soon if Covid allows..) and I intend to declare myself non-resident when I am away which means I can't keep money in TFSA. Now given that I don't have much in CPP and RRSP I was thinking maybe IRP would be a second best option for me if it brings fruits in retirement.

Anyway I really appreciate your advice and thanks a lot for your time to break it down for your time.
 

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Discussion Starter #7
^ From the insurance expert.

Your first sentence pretty well summed up what I thought, only I would remove the word "slightly".

And the best part I read is:

... what a double whammed con-job.
Hi thanks for your words of wisdom too I am sure some reader would benefit from them :D
 

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Hi thanks for your words of wisdom too I am sure some reader would benefit from them :D
... you're welcomed. I needed to get to the point on that ... ;)

Anyhow now reading your response /post #6:

... So the agent who is selling this product has also been my business accountant for several years and I consider him to be an honest guy which is why I considered the idea when he first presented it. Tax wise his advice has always been phenomenal which has helped build my trust through all these years. Coincidentally he also happens to be a relative of a close friend and my friend has told me that he signed up all of his children and some siblings for IRP so this lead me to think that his product must be authentic. Anyway, this could all be useless information to you but the personal connection was the driver behind my thought process as I wouldn't usually give a random "financial advisor" time of the day.
... that's a revelation. I don't think your accountant would be dishonest with assisting you with your taxation. But I'm getting that part isn't generating enough profits for him so he's selling (or doing the reference thing) insurance on the side. And he got baited with the 2nd bolded part and may now unintentionally baiting his client ... hardly unbiased here.

While your CPP/RRSP may not be much, what about your DB/DC plan? Don't forget there's OAS at age 65 (or a reciprocal one depending on the country you're expatriating to). And then there's abit of TFSA plus your own savings plan - that is one you can save like hell (after tax of course) to fund your version of retirement, if no other tax scheme works.
 

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So the agent who is selling this product has also been my business accountant for several years and I consider him to be an honest guy which is why I considered the idea when he first presented it.
Sounds like he sold his soul. Time to find a new accountant
 

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I worked with many agents in my lifetime. Many of who came from various other careers. I found gimmicks like IRP can be very mesmerizing to agents/advisors, especially the ones who pride themselves in tax knowledge. It is something that they never heard of and quickly feel it can add value to their clients, so they sometimes buy into it hook, line and sinker. Especially the ones who do not have a lot of wealth themselves. They may not understand "having wealth" all that well. Everybody thinks they do, but most don't or they would have a lot more of it.

When I first heard about it I thought it was very interesting as well. It did not take me long to figure out the main things I did not like about it. The cost of the life insurance was a big one. If you have kids that you want to leave a big estate to then perhaps it is money well spent but if this idea is pure retirement driven, the cost of that life insurance to your retirement plan is significant. Those death benefits do not pay for themselves. You pay for them. Then we have the exorbitant fees on the investments. The GIC rates are almost zero these days and the equity investment fees are usually in the 2.5% to 3.0%. Think about equity returns going forward, with no dividends (yes, they usually keep the dividends and pay only index returns) minus 3.0% in fees. There will not be much left for you and we haven't even paid the life insurance premiums and policy fees yet. Again, all this is due to the captive nature the insurance company has on you over time, once you are committed to this plan. Even if they offer better rates and fees then I have stated, etc., don't believe it. They operate the same way many of our banks do. They offer a product with very competitive rates, etc., and then they change them all later. They then come out with a newly named product that looks just like the one you bought previously, because it is, and they use it to draw other unsuspecting customers to it. Unfortuneately, you cannot switch your plan to the new plan. You are stuck with whatever they want to do to you and you most likely won't like what they do. This observation comes from years of experience watching how they operate. It is not exclusive to insurance companies. Banks do the same things with HISA etc., but you have a lot more flexibility moving your money around with the banks. You just have to be attentive to it. There is nothing you can do with the insurance company but bend over and prepare to receive. Newer agents would not know this and most others would not care to look and take notice of it.

Lastly, we have the issue with the 3rd party loan from the bank. If you look at the one page projection your agent showed you it all looks nice and pretty with you making a ton of money and paying no tax at all. How sweet is that. Now look closer at it. Even if you are 60 when you start drawing money, it goes on for years. That loan would need to be outstanding for 25 or 30 years. Usually the projection shows no servicing of the loan at all...for 30 years. Now think like a banker. You have this loan on the books. Growing to mind numbing numbers. I have seen them in the 10s of $millions before a person is supposed to die when they are 90. I just worry that some 25 year old banker will review that loan and see an outstanding balance for example of -$9,926,532.86, owed by an 89 year old customer, who doesn't even remember what it is for, these days. His daughter now accompanies him to the bank, each time he goes and doesn't know much more about it. The bankers notices a life insurance policy they have a call on, as collateral, that currently is worth $11,422,762, but fluctuates in value, every single day. The equity markets have been volatile these days, which makes the banker nervous and all of a sudden he decides the risk is too great and calls the loan. The daughter (POA) who knows nothing about this gimmick or how it is taxed, agrees with the banker and decides to close it out... and bingaga, boomgaga, wammo, you get a tax bill next year for income tax owed on other income of $11,422,762. Your estate is wiped out. There are no death benefits. Yesterday you were a multimillionaire and today you are alive but bankrupt. Well done. Definitely a poor understanding of wealth, with the main point here being, don't lose it.

Maybe I worry too much. Good luck to you and your agent with this, but it is just a little too sexy and convoluted for me...and yes, I could have sold a thousand of those types of plans and made a fortune...but lucky for my ability to sleep these days, I did not sell a single one to anyone and more importantly, I did not sell one to myself. It really is garbage.
 

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^ (y)Love the nitty-gritties like this part:

...
The bankers notices a life insurance policy they have a call on, as collateral, that currently is worth $11,422,762, but fluctuates in value, every single day. The equity markets have been volatile these days, which makes the banker nervous and all of a sudden he decides the risk is too great and calls the loan. The daughter (POA) who knows nothing about this gimmick or how it is taxed, agrees with the banker and decides to close it out... and bingaga, boomgaga, wammo, you get a tax bill next year for income tax owed on other income of $11,422,762. Your estate is wiped out. There are no death benefits. Yesterday you were a multimillionaire and today you are alive but bankrupt. Well done. Definitely a poor understanding of wealth, with the main point here being, don't lose it.
... so much for being told you'll be rich & tax-free! And the agent is no-where to be found to complain on. [Maybe in the Caymans] . And good luck with complaining to the regulator(s) with the revolving doors.

And best of all in the summary:

Maybe I worry too much. Good luck to you and your agent with this, but it is just a little too sexy and convoluted for me...and yes, I could have sold a thousand of those types of plans and made a fortune...but lucky for my ability to sleep these days, I did not sell a single one to anyone and more importantly, I did not sell one to myself. It really is garbage.
... I wonder how these policyholders are currently sleeping though.
 

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When the plan moves from projection/illustration to reality ownership it usually doesn't take the policy owners long to start questioning the merits of it all. I suspect at the end of the day most people who buy into this plan eventually either cancel it and take the smaller loss or defund the side fund, to its minimum amount to support the life insurance premium and policy fees, and keep the policy for estate purposes only.

In my experience when it comes to retiremement or wealth planning life insurance is one of the worst ways to provide that and when it comes to estate planing death benefits it is probably one of the best. Most policies can be changed from one plan to the other fairly quickly and with less cost then continuing it in the form where it is least beneficial.

I mean, at the end of the day, this is just life insurance. Over the years it is not like they have changed the policies in any way, but more they have just dreamt up more inventive ways for it to be used. Some work well, others don't.
 

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When the plan moves from projection/illustration to reality ownership it usually doesn't take the policy owners long to start questioning the merits of it all. I suspect at the end of the day most people who buy into this plan eventually either cancel it and take the smaller loss or defund the side fund, to its minimum amount to support the life insurance premium and policy fees, and keep the policy for estate purposes only.

In my experience when it comes to retiremement or wealth planning life insurance is one of the worst ways to provide that and when it comes to estate planing death benefits it is probably one of the best. Most policies can be changed from one plan to the other fairly quickly and with less cost then continuing it in the form where it is least beneficial.

I mean, at the end of the day, this is just life insurance. Over the years it is not like they have changed the policies in any way, but more they have just dreamt up more inventive ways for it to be used. Some work well, others don't.
... I would like to believe that it can be "done fairly quickly and with less cost" but highly doubt it ... without the agent's resistance and whatever "cancellation" terms (aka penalty) built into it.
 

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What I meant was all a person has to do is say this policy, that I was going to use for my retirement, will now be used to bequeath a bigger estate to my children.

As I said. It is just a life insurance policy at the end of the day. What the owner does with it after they buy it is up to them. Now that said, if they don't have any children or they don't feel motivated to sacrifice retirement money to create an estate after they are dead, then the other route of cancelling it and bearing the loss will probably be the only other option.

I agree. There is little ability to change the base plan after it is in force.
 

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I would never buy a combo Product like this. I prefer simplicity and competition. I would shop for life insurance on it’s own. i would review investment opportunities by themseves.

More options, less complicated, and I suspect far less management overhead and fees against the investment. Not to mention future flexibility. I suspect that there is a much higher commission rate on this product for the seller.
 

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These types of policies are generally meant to be sold and not bought. It is hard to break through the headwind of fees and commissions. Plus there are times in life when you would like to have unencumbered access to your funds for a variety of reasons.

Just accumulate index funds for retirement. At the time of retirement consider annuitizing portion of your retirement fund (using a single premium immediate annuity), if that suits you.
 
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