Most people think a person can purchase as much life insurance as they want. But it’s not true. Up until recently there was a limit of $100 million.
Sure, if you begged and pleaded you might have been able to get more, but from the traditional Canadian life insurance companies, $100 million was pretty much it. You might wonder if this begging and pleading was happening often. It’s not happening dozens of times a month, but it does happen! There are some Canadians who want to pay a life insurance premium somewhere between $1 million to $15 million a year.
Some of you who have a net worth in the range of the annual premium, or who would like to have a net worth in the range of the annual premium might ask why anybody would want $100 million of life insurance. It’s not a mistake! If they can afford the premium, they have the best accountants and tax and estate lawyers in Canada who are supporting the decision.
In most cases it is simple: Some assets are taxed at death. The tax bill must be paid. It will be paid either from assets or from life insurance. The people buying $100 million life insurance policies know that life insurance is the easiest and least expensive way to pay the tax bill. It’s a way to pay the tax without selling or disrupting ongoing business or family legacy assets that would be best enjoyed by the next generation.
You probably know that in many cases, people with high net worth have fancy trusts, holding companies, intricate share structures, and do estate freezes. But the tax bill still must be paid at some point. So wealthy people using every planning scheme known to modern man still often want $100 million of life insurance, because it is the only asset that is guaranteed to be 100% liquid when needed. Life insurance is simple – it is a “liquidity created at death” term deposit.
The purpose of this email is not to tell you that life insurance is liquid cash at death (you know that already), but to make an announcement: For those of you stymied by the $100 million life insurance limit, there is good news! Sun Life recently announced that they will offer up to $220 million of life insurance to an individual!
For any person who has net worth over-and-above the value of their house, life insurance might be the difference between the survivors needing to sell valuable business and personal assets and legacy recreational real estate, or not. It might be the difference between a successful family business surviving, or not.
This year, I haven’t yet opened a client file leading to a proposal for $100 million of life insurance, not to mention $220 million, but I am open for business for that prospective client!
But realistically, any person who has assets over-and-above their residence can benefit from the same thinking and planning that results in some Canadians paying a few million dollars a year in life insurance premiums.