Episode 112: Turning $2.8M Net Worth Into a Money Making Machine That Will Grow Forever | Canadian Financial Planning Case Study

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Are you leaving wealth-building opportunities on the table when designing your Canadian financial plan? Isn’t this the question we constantly ask ourselves? Is it the question that keeps you up at night? 

What if you could turn your financial strategy into a money-making machine while protecting your legacy?

In today’s episode, we dive into a case study that speaks to a challenge many high-income earners face: how to efficiently grow and protect wealth while minimizing tax liabilities. 

For Canadians juggling multiple investments and wondering if they’re leveraging their financial tools to their fullest potential, this discussion unpacks a unique solution—permanent life insurance with high early cash value.

Whether you’re navigating a mix of RRSPs, TFSAs, real estate, or equities, it’s easy to overlook how a properly designed insurance policy can complement your portfolio. This episode explores a specific listener’s financial situation to illustrate how this tool can act as a pass-through structure, unlock investment opportunities, and safeguard your legacy.

• Discover how to create a “life equity line of credit” that allows you to use your dollars in multiple places at once.
• Learn how a permanent life insurance policy can serve as a conservative fixed-income alternative in your portfolio for long-term stability.
• Explore how this strategy can manage future tax liabilities while ensuring a significant legacy for your family or causes you care about.

Click play now to uncover whether this strategy could unlock hidden opportunities in your financial plan!

Resources:

• Dig into our Ultimate Investment Book List
• Book a Discovery Call with Kyle to review your corporate (or personal) wealth strategy to help you overcome your current struggle and take the next step in your Canadian Wealth Building Journey!
• Follow/Connect with us on social media for daily posts and conversations about business, finance, and investment on LinkedIn, Instagram, Facebook [Kyle’s Profile, Our Business Page], TikTok and TwitterX.
• Looking for a new mortgage, renewal, refinance, or HELOC? Reach out to Jon to share some options.

Calling All Canadian Incorporated Business Owners & Investors:

Consider reaching out to Kyle if you’ve been…

• …taking a salary with a goal of stuffing RRSPs;
• …investing inside your corporation without a passive income tax minimization strategy;
• …letting a large sum of liquid assets sit in low interest earning savings accounts;
• …investing corporate dollars into GICs, dividend stocks/funds, or other investments attracting cordporate passive income taxes at greater than 50%; or,
• …wondering whether your current corporate wealth management strategy is optimal for your specific situation.

Are you maximizing your wealth-building potential or leaving money on the table? In this episode of Canadian Wealth Secrets, we dive into tax-efficient wealth strategies like permanent life insurance with high early cash value. Learn how tools like a life equity line of credit (LEELOC) can create opportunities for high-income earners, young families, and T4 employees to grow their financial freedom while preparing for future tax liabilities. Whether you’re navigating the Smith maneuver or looking for alternatives to fixed-income portfolios, this episode offers insights on how to leverage life insurance to build generational wealth and reduce risk. Don’t let overlooked strategies hold you back—listen now!

Transcript:

All right, Canadian wealth secret secrets. It’s Kyle here for another Friday secret sauce episode. And today I’m going to be answering an email from you the listeners. We’ve got a client who’s reached out and is and I shouldn’t say a client, it’s a listener and and it sounds like this person may be a client moving forward. Because they’re wondering if they are a good fit for participating whole life insurance, specifically a high cash value policy.

given their situation. If you’ve been listening for quite some time, you’ll know that we talk a lot about how the corporate owned life insurance policy is such an important tool for incorporated business owners here in Canada. And that is still true. It is massively important. It’s also massively important for some who are T4 individuals who are accumulating wealth or are on their trip to accumulating wealth. And

This particular client is reaching out and again, listener I should say is reaching out and asking whether they’re a good fit or not. So I want to give you a highlight here. And in this episode, I want to sort of capture three big things that you can achieve with a permanent life insurance policy. And in particular, when we design it with an early high cash value.

We can utilize it for a number of different things we’re gonna explore in this particular episode. And the word that I want you to get used to thinking about is thinking of this as a pass through structure while you are here in the now, okay? Because a lot of people get hung up on this idea of the death benefit. We’re actually not as concerned about the death benefit when we design policies for our clients, our business owner clients, or our high net worth

clients that are individually holding assets. We’re actually looking for how do we sort of have our cake and eat it too. So let’s dig into this case study and we’ll unpack three big things that this particular client’s going to get, even though they’re not an incorporated business owner, but they do have some assets and they’re continuing to grow those assets. So this particular client is 36 years old, has a spouse who’s 37 and

They also have two children. They’re younger children. Seven and six are the ages of those children. And they are T4 employees, not the children, the actual adults here. So he and his spouse, they are earning about $300,000 in one T4 and on the other T4 about $140,000. So a fairly high income coming into the household. Now, some of the things they’ve told me about I’m very impressed with. First off, they are

really stuffing in RSPs as well as their match contribution pension plans and so forth. They have about $1.2 million in RSPs, tax-free savings accounts and pensions. So that’s great. And they’ve also let me know that they’re in 100 % equities. Once again, awesome. You’re super young. There’s really no need necessarily specifically in those particular accounts and pensions.

to be in say, you know, low balance funds, fixed income in those particular accounts, okay? But we’re gonna talk about why it might be helpful to have some of that type of asset class a little later here. They’ve also got a margin account of $1.9 million, again, all in equities. They have an RESP that’s funded about 70,000 for those kids so far, great job. They’re in a private REIT.

which is a real estate investment trust. So basically they’re investing in this REIT as passive investors. They have $270,000 there. They’ve got a private business equity investment at about 300,000. Their primary residence is worth about $1.1 million. So they have a total of about just shy of $5 million in assets.

That is fantastic, especially at this age. So it sounds like they’re doing a lot of great things. They’re thinking about paying themselves first and they’re making multiple investments. Awesome stuff. Now they do have liabilities here. So they have a mortgage. It’s a very small mortgage, about $130,000. Awesome. But you’ll note that they’re using their HELOC for the Smith maneuver and they’re doing it in a couple of different ways. So first off for the REIT

They had borrowed $150 for that REIT. So that REIT, sounds like it’s grown quite substantially from the $150 to about $270. That’s awesome. They also have that private business equity investment at $300,000. They have a HELOC balance of $300,000 for that. So those are sort of offsetting at this point. But once again, they get to write off the interest on the HELOC. Awesome.

and they’re using the Smith maneuver, my guess is into that margin account. So they borrowed 300,000 in total to do that as well. So they have about $2 million in liabilities going on right now. actually I should say, yes, $2 million-ish, and it puts their net worth at about $2.8 million. So the question is, is a permanent life insurance policy a good move? Because a lot of people, I used to be one of them.

like I’m 100 % here. wasn’t, you know, didn’t wake up one day and just know that this tool could be helpful to me, my business, John’s business, any of Matt Bigley’s business, for example, who used to be on the show. It took a very long time and it was hard to find helpful information that applied to our direct situation. So I want to take this particular case and I want to talk a little bit about it because there are some

areas here that you know, they’ve got a lot of good things going on and tax free things going on their primary residence once again, no capital gains on that primary residence, which is great. They have their TFSA there’s going to be no capital gains when they pull money or sell anything in the tax in the tax free savings account. The same with the RSP and pensions if they buy and sell in the RSP, they’re not going to experience any sort of capital gains at the time.

They are gonna have income tax on the way out. So that’s just something that you’re signing up for with an RRSP. However, with a $300,000 T4 income in the household, it makes sense that they’re utilizing the RRSP. So great to hear that they’re doing that. They’re also very heavy into equities, which again, is a great move, especially at this age, right? They have a much higher risk tolerance. They’re not planning to utilize this money now,

So again, I can’t speak to whether they’re good equity investments or not, whether it’s index funds or whether it’s, you know, stock picking, I’m not gonna comment on that. The reality is, is that they’re doing a lot of things very well. But the piece here that’s missing is that right now their net worth is at about 2.8 million. And only some of that is going to be exempt from say capital gains taxes or income taxes.

in the future. The RSP is going to create income taxes. And that’s just the reality of it. But these other investments, as we sell these investments, there are going to be taxes associated with them, there’s going to be capital gains. So when I see that, and then you start to think to yourself, my gut here is that this individual and this couple, I should say, are going to probably continue to make investments throughout the duration of their working years, which means

I anticipate that their net worth is going to continue to grow. And as that net worth continues to grow, you are actually taking on more and more tax liability over time. Now, don’t get me wrong, if you were to like pull the plug on all the assets, you’re gonna have obviously more there than is necessary to pay the tax bill. But the question is, do you want to have to pay the tax bill? Or do you want your estate to have to pay the tax bill?

The other aspect is as we age, we tend to actually want to, you know, sort of scale down on our risk. So they start to go a little bit more risk off. And it might not mean going from 100 % equities to 0 % equities. I don’t think that’s a good move at all. But they might wanna have some other sort of just in case buckets happening here. And what I wanna share with you in this episode is how we can have our cake and eat it too.

in three different ways. So what we’re gonna do here is we’re gonna talk about how we can potentially, this particular couple can start building a permanent life insurance policy designed with a high early cash value so that they can get three things and we’re gonna unpack them here. The first one is they’re gonna get a HELOC like line of credit. Okay, we’re gonna call it the LEELOC. Why? Because it’s a life equity line of credit. You’re going to actually be borrowing

against your future death benefit. That’s what the cash value is in a policy. It is the value of your death benefit. Now while you’re alive, based on probability, it’s saying, Listen, I don’t care what the death benefit is. As of today, the chance of you dying today is at such a level that the cash value is worth this. It’s just an expected value. I used to teach data management and probability when I was

high school teacher and I loved that course and it was all about probability and it’s really just the expected value and what it means is in the early years is that your chance of dying is very low and therefore the calculation on cash value is very low at this time but that death benefit is going to pay out down the road at some point. It is going to happen unless Elon Musk or somebody else figures out a way for us to live forever, this thing’s gonna pay out. So what we wanna do is

Basically, we want to take dollars, and we want to think of this like a pass-through structure. So rather than saying to this couple and say, hey, listen, I want you redirecting one of every $2 into a policy and then the other dollar into equities, we’re not going to talk like that. We’re going to talk about funding a policy that makes sense and considering the cash value for investment opportunities. This is where we’re going to optimize.

our growth because basically what you’re going to be and if you want to think in infinite banking terms, it’s like you’re being the bank, you’re actually going to borrow against your own asset, just like they’re doing here with their HELOC. They’re going to borrow against this other asset, this other bucket in order to use money in more places than once. They’ve got money locked up in their house, and they are now using that money in the markets as well. They don’t lose the money in their house, they’re using someone else’s money.

against that as collateral. We’re going to do the same thing here with this particular policy. That’s the first thing. So setting up this pass through structure so that we can essentially use our dollars in more places than once. The second one is they’re actually, whether they like it or not, going to be creating a fixed income portion of their investment portfolio. So right now it sounds like they have nothing in terms of the fixed income area bonds, those safer type assets.

This is actually a tool that’s actually better than, say, bonds, because bonds will go up and down, and they tend to work in opposites. Tend to. Except when we’re experiencing deceleration in GDP growth and if we’re experiencing deceleration in inflation. In those environments, everything sucks. And that’s not very fun at all. So the challenge is,

is how do we get this fixed income bucket going, not for today, but for later, so that when I do want to go a little more risk off, I have options to do so. Well, we’re going to get that. That’s the second thing here we’re going to explore. And then the third one is how do, and I call this like the bonus. This is like not necessarily why most of the clients that reach out to us want to work with us. They usually want things for the now. They want to be able to reinvest their money. They want to have options. They want to have essentially an opportunity bucket.

through this pass-through structure that we’re going to create for them? Well, the third thing they get automatically is they get a bucket that’s going to deal with capital gains taxes at death and potentially leaving a large legacy for the next generation. Now, they do have two children. But if they didn’t have two children, the reality is down the road, they might have other people in their life that they would actually like to leave something behind.

Maybe they want to start a foundation. Maybe they want to donate to charity, whatever it is, having that as sort of a throw in is always a great move. So what I’m gonna do with you friends here, and those who are not on YouTube with me, I’ll encourage you to come back to this if you’d like to see it. I’m gonna try to be as descriptive as possible, but I’m gonna bring up a scenario. Now I haven’t spoken to this individual yet about…

what policy design makes the most sense for them because I actually need more questions. I need to know more from them to decide what’s a good fit. But I thought I would start in a place that would allow them to kind of have a little bit from every aspect here. So what I want to do is I want to create a big enough opportunity fund here for them so that they can essentially start creating this extra home equity line of credit type bucket for themselves.

but I also want to make sure that they’re able to essentially be able to leverage enough out of it that it makes sense and that it’s actually helpful in the interim when opportunities do arise. So on the screen here, you’re going to see I’ve run this on the mail in the household. He’s 36 years old and I’m showing a high early cash value policy that can fund up to $36,000 per year. That’s about $3,000 per month.

Now that’s on the maximum side of things. That’s how we’re going to maximize the amount of early cash value. And that also gives them flexibility in say a year where they’re in a bit of cashflow pinch or anything like that. They can fund as little as about 13 three. So that’s just over a thousand dollars a month here. So in their minds, I always like to say the minimum amount is sort of like your comfort number. Like, are you comfortable with that for at least the next 10 ish years?

And again, I say 10-ish years, because usually around year 10 is a decent place to offset a premium, meaning you don’t need to pay anymore. You can slow down. You don’t have to do this if you don’t want to. But ultimately, someone with a runway like we’re seeing here, I’m going to argue that that’s not going to happen here. But you still want to be able to sleep well at night. So that’s where that minimum premium comes in. But this illustration, we’re actually going to assume that they’re going to max fund $36,000 each year.

And actually, in this first example, we’re going to do this for the remainder of their life. They don’t have to do that. They can offset after around year 10-ish. They can actually offset earlier if they do max fund for the first five or six years. But again, it’s more beneficial to keep this thing going. I always say a 10-year-ish runway should be your goal in the back of your mind. What’s going to happen is there’s going to be dividends that are going to be reinvested into more death benefit each and every year from the investment

of the insurer. And here we’re seeing that even though we’ve talked about this opportunity cost in year one, there’s a little bit of these cash premiums that are not going to be immediately accessible. So we can’t get all $36,000 out yet. There is a little bit of a set up sort of cost here in the interim. Now it’s not going to actually hurt things in the longer term or even the medium term, but just upfront. Like if they need all $36,000 to make an investment today or next month,

then this isn’t a good move for them. But if they don’t necessarily have something on the horizon or they only need access of about $25,000 to $30,000-ish over the next year, then this policy may make sense for them. right? With it, which is really helpful for a young family, is they’re also going to get upfront. They’re going to start with about $866,000 of death benefit.

What does that mean? Well, it means that if they have term insurance already, we haven’t gone down that rabbit hole, but if they do, they might not need as much of it, right? A $300,000 income plus another, what was it? 150 or so, 130 or so income. That’s $430,000 per year that the household’s generating now, and they’re very young. So if they’re planning to work another 20 or even 30 years, you’ve got to essentially multiply the after-tax amount

by 20 or 30 years to sort of just replace what they would be creating if one or both of these spouses were to pass away. So what we’re trying to do is create this permanent death benefit that will continue to grow each and every year so that we don’t have to rely as hard on term insurance. And we can actually cancel some term earlier in the journey than you might do otherwise. And here we know this death benefit is gonna pay out as long as we keep this policy in force and eventually offset the.

premium at like I said, year 10 or later is usually a good rule of thumb to sort of use as a guiding a guiding light. So let’s see what happens in this policy. So they fund this thing for say, you know, the first few years, we get to year five, and you’re going to notice here that we are past the quote unquote, break even point on cash value, meaning all of the money that they’ve put in so far is accessible to them through cash value.

I can go directly to the insurance company and I can leverage up to 90 % of this cash value in order to put it into other opportunities or investments. They could do this as early as year one, but just note that, again, less cash value is going to be available to them or less of the premiums available to them through that avenue. But it still doesn’t mean they cannot do it. They can get started and continue these investments. So again, we’re not comparing this to the investment.

We’re creating a pass-through structure here so that we can be building a very conservative investment class that we can then later use potentially as a cash wedge for maybe retirement income or other aspects or just a large opportunity bucket for the next big investment, the next big REIT that comes along or the next big private deal that they might be interested in investing in. So this is sort of a place that we’re slowly starting this bucket.

By about year 10, they put in $360,000 of premium, and they have about $443,000 of cash value available that they can be leveraging and utilizing. Again, that’s going to be tax free through leverage. And they’ve got a death benefit now that’s grown to $1.7 million. We can see if, let’s say, at age 47, so in year 11, this individual decides to start

income because maybe they stopped actually working their $300,000 job or whatever it might be. You’ll notice here that if we keep funding the policy $36,000 a year, this individual can start pulling $50,000 as leverage out of this policy or against this policy and do this for the remainder of their life while still leaving a legacy.

at age 100, about a million dollars of death benefit will be remaining for this particular individual. They will have pulled a large loan balance of about 13 and a half million dollars. However, their cash value is $14.6 million. Their death benefit is $14.6 million. You’ll notice in age 100 is when the cash value is equivalent to the death benefit. So here, they’ve been borrowing against their future death benefit.

in order to live lifestyle. They’re actually in this scenario, putting $36,000 into the policy and taking out 50,000 out the other end. Like that’s a really impressive thing here. Now some people say, you know what, what’s the chance that I’m gonna fund this thing $36,000 for the rest of my life? Well, actually I have no clue what the chances are for you. But if let’s say we turn this thing off after year 10, same policy.

different scenario where let’s say they offset after year 10, the dividends are now going to be helping to fund this minimum required annual premium of just over 13,000. And you’ll notice the cash value is the same in year 10 as it was if we were life paying or doing this for the remainder of our life. But the reality is, is what we’re getting is, what we’re getting is,

a slight change happening in year 11, because we’re no longer funding the 36,000 out of pocket. So cash value is going to slow down on its growth, but it’s still going to grow in compound. So you’ll notice that in from year from year 11 to year 12, without putting another dollar into this policy, we’ve grown this thing by about $24,000. And the death benefit is still slowly increasing over time.

In this particular case, you might decide to push off pulling say income against this policy. Maybe it’s, you know, when they’re age 57. So we waited 20 years after funding this policy. We funded for 10. We did nothing for 10. And then we start pulling income at age 57, which is year 21. And they could pull about $31,000 for the remainder of their life. And once again, still leave, you know, almost just above

half a million of legacy for their estate that can help deal with capital gains taxes or otherwise. Some people might look at it as more of a cash wedge so they fund it for 10 years and then starting at age 57 they decide to pull $58,000 until age 70 when they want to start taking their CPP. They don’t need CPP early at age 60 or taking it at 65. They can push it off till 70.

which is actually a better move, you’re going to get about 35%, 38 % more CPP every year by doing so. Well, they could be using this as a bit of a cash wedge for about, what, 13 years or so, and still live to 100 and leave about $600,000 in death benefit after paying off the loan against this policy. Now, we’re sharing a bunch of scenarios. The other scenario that we don’t talk a whole lot about,

is probably worth mentioning is that you could grow this bucket and never decide to leverage against it for income in your entire lifetime. You might choose to go to other buckets that you have because now you know there is this death benefit legacy coming out the other end. You might start to pull more from the tax free savings account or you might start borrowing against your actual home because it’s there. It’s easy and you just know that this policy is going to take care of everything on the back end. If this

couple were to fund this policy for the remainder of their life and live till age 85 without leveraging, they’re going to have a cash value of $7.2 million sitting there that they can leverage at any point for any opportunity to gift to do whatever they want with and a death benefit of about $8.9 million coming to the estate down the road. So when we look at this specific example for this individual couple noting that

I’ve picked one premium idea to start with in order to highlight the three big benefits that this couple can benefit from. We have now an additional opportunity bucket, just like they’re doing with their home equity line of credit that they’re building up and that they can leverage for opportunities to keep their money working in as many places as once as they possibly can. We like to consider that like using this as a pass through structure so the money isn’t stuck there.

You’re going to leverage against it so you can make money in more than one place. The second thing they’re getting here, which is built in, is that fixed income portion of the portfolio that they do not have at this point in time. And again, I’m not telling them that they need that now, but down the road, they’re probably going to need or want it just so there’s less volatility in their portfolio as they age and as they get closer to their financial freedom numbers. And then finally, the third piece that gets thrown in,

is the death benefit that’s paid out tax free in order to deal with any capital gains, any legacy planning, any of those things that you have down the road, they might not matter to you now, but the reality is, is when you have a large permanent death benefit that’s backstopping anything you do, it really does give you a permission slip to spend your money during your lifetime to do the things that you want to do.

while you’re here, because the only finite and limited asset that we have in this life and in this world is time. Everything else we can grow, everything else we can build, but time is one thing that we cannot change. And why not put yourself in the best situation possible so that you can feel like you have the opportunity, the optionality to do the things that you want to do in this world. So my friends,

If you like this episode, do us a huge favor, like it, subscribe, leave us a rating and review on Apple podcasts. We have been in the top 100 business podcasts in Canada for quite some time now, and we want to get into the top 15. Help us to get into that top 15. It would be so helpful. And for those who are listening to this and they’re thinking, you know what? I think this might be something we need. We are licensed in order to do this work with you.

and alongside you. reach out to us over at Canadian wealth secrets.com forward slash discovery. And we will run through your scenario to determine whether a permanent insurance solution strategy is a good fit for you or whether you should be focusing on other aspects of your financial plan for the interim. Thanks, my friends, and we’ll see you next time.

Canadian Wealth Secrets is an informative podcast that digs into the intricacies of building a robust portfolio, maximizing dividend returns, the nuances of real estate investment, and the complexities of business finance, while offering expert advice on wealth management, navigating capital gains tax, and understanding the role of financial institutions in personal finance.

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