Why Par Whole Life is the Wealth Transfer Tool Advisors Can’t Overlook

As Canada’s largest intergenerational wealth transfer kicks into high gear over the next decade, $1-trillion in assets is expected to change hands. For advisors, it can be prudent to position participating whole life insurance as part of estate planning. The product can play a powerful role in holistic strategies that preserve wealth, reduce complexity and support smooth transitions.

These policies allow individuals and their businesses to transfer wealth that would otherwise be taxable. Essentially, the product shifts taxable wealth into a tax-free death benefit. That provides liquidity to protect families and businesses from catastrophic financial loss, while ensuring that taxes and other expenses are minimized.

“It’s tax-advantaged, ensuring more wealth flows to the heirs,” says Kathryn Bennett, director of Tax and Estate Planning at RBC Insurance.

Participating whole life helps advisors deliver solutions that not only protect clients’ wealth but also empower families to thrive for generations because of the tax advantages, flexibility and permanence of participating whole life, she says. This long-term approach to legacy planning provides more stability and certainty in an uncertain world.

“It’s about legacy – what’s left the day after. Insurance helps make sure that legacy happens.”

To that end, beyond helping reduce the impact of estate erosion because of taxes, Ms. Bennett notes participating whole life has a cash value component that can grow over time. That happens from dividends generated from the policy’s underlying investments. Payment of dividends aren’t guaranteed; other factors that can influence them include death benefit payouts, lapses in premium payments, and expenses/taxes.

Policy owners can take the dividends as income, which are taxable, or can increase the size of the death benefit.

“There’s also the potential, if the participating [whole life] policy fund performs very well, for a premium offset, whereby the policy could eventually become self-supporting,” Ms. Bennett explains.

As a tool to support the great wealth transfer, participating whole life insurance often appeals to older and more affluent Canadians as their wealth and estate plans become clearer. Yet this insurance can also be suitable for younger clients.

“It works for them differently,” Ms. Bennett says. “A high-income, growing family could purchase a policy for a lesser amount, with the potential to increase the benefit later when taxable wealth exposure and their capacity to pay higher premiums increase.”

She notes that comprehensive, holistic wealth planning should combine retirement, tax and estate strategies to define the needs and risks insurance is meant to address.

“There’s a lot of fact-finding: What do they own? What do they owe? Is the business incorporated? Insurance fills the gap between what you’d like to happen and all the costs that erode estates: taxes, probate, and estate administration costs and debts.”

Participating whole life is often considered when individuals have maximized registered retirement savings plan and tax-free savings account contributions. When surplus income is invested in non-registered accounts, that results in higher taxes paid while alive. Moreover, the capital is likely to grow significantly over decades, creating a sizable tax bill for the estate. The right planning determines if that capital can be put to better use as premiums for a participating whole life policy.

“People with additional income during their lifetime can put more money into the policy to grow those tax-advantaged values and the tax-free death benefit,” Ms. Bennett says.

This strategy may be particularly of interest to successful entrepreneurs. Their corporation can be a beneficiary, providing tax-free liquidity that can be paid tax efficiently as dividends to shareholders.

“Participating whole life inside a corporation has the advantage of no tax on that growth inside the policy. They potentially could put more money in, reallocating from taxable investments into the policy through the additional deposit option.”

More broadly, the benefit isn’t generally subject to probate, avoiding fees in some provinces while allowing beneficiaries to receive the proceeds faster.

The benefit may also be exempt from claims of creditors of the deceased for personally owned policies.  For corporations, it provides liquidity to cover taxes associated with the transfer of ownership.

Participating whole life provides the liquidity to address a range of unique needs, such as business succession, creditor protection and covering the costs of estate administration. Given the product’s complexity, Ms. Bennett says advisors should work closely with insurance, tax and estate specialists to maximize the value and determine suitability.

Taking a collaborative approach with other professional advisors can help ensure that the participating whole life policy is aligned with the client’s broader legacy goals.

By introducing participating whole life, advisors can also deepen conversations about legacy across generations and provide greater clarity around long‑term planning. “This holistic wealth planning is about tailoring solutions to a client’s needs, hopes and their legacy. And participating whole life insurance can make sure that legacy happens as planned.”