River of Excrement
Let me just start by saying ... Nick hates insurance. As far has he is concerned ... it's a waste of money. He provides well for his family. But the idea of this extra cost, where he has absolutely no benefit doesn't sit well for him. Being 10 years older than his wife Karrie he came into the marriage with considerable funds and the mortgage on their $600K home is only $200K.
But in reviewing their overall financial situation, the lack of insurance was glaring. Karrie had spent the early years of her marriage raising children. She now works part time earning $35K, while Nick is the major breadwinner earning $95K a year.
Nick and Karrie got the fact however that if something were to happen to Nick ... Karrie would be, "I believe the appropriate metaphor here involves a river of excrement and a Native American water vessel without any means of propulsion" - Dr. Sheldon Cooper
Nick is a saver and he contributes to his RRSP every year, pays more than the required minimum on his mortgage, and wants to start investing in a TFSA as well.
Instead of paying down extra on his mortgage we were able to deploy $16,000 a year into a $600K whole life insurance policy. At first, this seemed so counter intuitive to Nick ... remember ... he hates insurance. But I was able to show him how his $16,000 could provide him with a tax free income of over $20,000 a year in retirement in addition to leaving Karrie with a residual death benefit.
"Sure, not paying down extra on my mortgage means I may still have a small balance at age 60, but I will also have a paid up life insurance policy that will have grown to over $1Million dollars I can benefit from."
The whole life policy would also give him greater freedom in his retirement years. For example, he no longer needed to withdraw only the minimum RRIF income so money would be available for Karrie who was likely to outlive him. The residual death benefit (after he accesses $20K a year) of $800K of life insurance would be able to compensate for this when he was gone.
He can also do a reverse mortgage on his home in retirement, knowing that the mortgage balance can be paid by his insurance policy and then Karrie can use the additional home once again for a reverse mortgage balance that is much higher, on an appreciated house value.
Nick was quickly able to see how investing in his insurance policy gave him a very valuable living benefit not only in the permanent insurance policy he owned, but also in the freedom to spend down other assets in his retirement years.
Nick's retirement income is looking great.
Note: For confidentiality, the names and some of the details of this client profile have been changed.