Insurance Archives - Foresight Financial

Estate Freezes: A Smart Tax Strategy or a Risky Move?

by Foresight Financial | Dec 1, 2025 | Blog, Estate Planning, Insurance

Have you heard of an estate freeze but aren’t sure what it means—or whether it’s right for your business?

An estate freeze is a powerful tax-planning strategy that allows business owners to “lock in” the current value of their company while shifting future growth to the next generation. Here’s how it works: you exchange your common shares for fixed-value preferred shares on a tax-deferred basis. Your children—or a family trust—then receive new common shares, which capture all the future growth of the business.

This approach caps the taxes you’ll owe on a sale or at death while ensuring that your heirs benefit from the company’s long-term success.

But timing and planning are critical. Consider these key questions:

Value: Is your company’s current worth, along with your other assets, enough to support your retirement lifestyle?

Age: How old are you—and your children? Freezing too early could shift too much growth, leaving you with less than you need.

Flexibility: Using a trust can delay decisions about who ultimately receives shares—helpful if children are young, or if some are involved in the business while others are not.

Estate freezes can be highly effective when designed carefully. In many cases, insurance is paired with the strategy to cover tax liabilities and to ensure fair treatment between children who are active in the business and those who aren’t.

If you’re thinking about an estate freeze, now is the time to plan. Let’s connect soon to explore your options and see how insurance can strengthen your strategy.

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Finding Coverage That Fits: Flexible Insurance Choices for Canadians

by Foresight Financial | Oct 1, 2025 | Blog, Insurance, life insurance

Life and critical illness insurance are designed to help protect the people you care about most. But let’s be honest—qualifying for traditional insurance isn’t always easy. If you’re living with a health condition or have faced coverage denials before, the process can feel frustrating and discouraging.

The good news? There are newer, more flexible insurance options in Canada that can give you the protection you need—without all the hurdles.

Two popular choices include:

Guaranteed-Issue Insurance – No medical questions at all.
Simplified-Issue Insurance – Just a short health questionnaire, much easier than the traditional route.

These plans can be especially helpful if you’ve been turned down in the past because of things like cancer, heart disease, diabetes, mental health challenges, recreational drug use, or even something like a poor driving record. Instead of leaving you without coverage, these options give you a way to protect yourself and your family with less stress.

It’s true that premiums for these types of policies can be higher than traditional ones. But the trade-off is less paperwork, no lengthy medical exams, and a quicker approval process. That said, it’s still important to look carefully at the details—like how much coverage you’ll get, what’s included, and whether there’s a waiting period—so you can be confident the plan fits your needs and budget.

At the end of the day, guaranteed-issue and simplified-issue insurance are designed with real life in mind. They give you a way to get coverage that works for your situation and can bring peace of mind during uncertain times.

Let me know if you are interested in exploring any of these options and as always, please feel free to share this article with anyone you think may find it of interest.

Which Term Life Insurance is Right for You?

by Foresight Financial | Sep 1, 2025 | Blog, Insurance, life insurance

Once you have decided on how much life insurance you need, your next decision is whether you are going to use term insurance or permanent insurance to provide it. For many Canadians, while permanent cash value life insurance offers a significant opportunity for them, many initially utilize renewable and convertible term life insurance. Most life companies in Canada offer 10-year, 20-year and 30-year renewable term policies. In deciding which one is right for you, attempt to match the need to the term. While 10-year term might have the lowest entry level cost, the renewal premiums will be substantially higher. If you have a young family, ask yourself, will I still need protection beyond the 10th year? If that answer is yes, then a longer renewal period is more appropriate.

In making your choice, it is important to understand how renewable term policies function. In Canada, the renewal of the coverage is automatic (unless you decide not to renew) and guaranteed. The premium on renewal, however, will increase dramatically. Anyone who has 10-year renewable term insurance, instead of renewing it, should rewrite the policy for a new term period. This, of course, will require the individual to provide medical evidence that he or she is still in good health. If the insured has become “uninsurable” he or she still has the option of the guaranteed renewal. To protect itself from being left with only “poor risks” the life insurance company builds a hedge into the guaranteed renewal premium.

For example, Dave, a male age 40 who is a non-smoker can purchase a 10-year renewable term policy with a death benefit of $1,000,000 for $570 per year. At the end of the 10th year, the guaranteed renewal premium for that policy is $ 3,970 per year. If Dave was still a standard risk, a new $1,000,000 10-year term policy would cost $1,310 per year at his age 50. The problem is, what if he was no longer insurable due to an adverse change in his health or other factors? If Dave still needed the coverage, and he didn’t want to convert the policy to a permanent plan such as Whole Life, he would have no other option but to pay the $3,970 annual premium.

Let’s look at Dave’s situation and see if we can come up with a better solution for him. Dave is married and has two children ages 7 and 9. He and his wife have concluded that they do need $1,000,000 of life insurance but their current finances only allow them to consider renewable term insurance. With the ages of their children, it is probable that the coverage will be needed for longer than 10 years, but it is hard to ignore the very low premium on 10-year renewable coverage even though 20-year coverage is more appropriate. Dave studies the numbers shown above and compares them to the 20-year plan which costs $940 per year for 20 years.

In a perfect world, if Dave were able to re-write the 10-year term policy in year 11 (assuming the same premium rates are still available) his policy in year 11 would cost $1,310 per year. His average cost over the 20 years would be $940 per year, the same cost as the annual premium for the 20-year term. The risk Dave would be taking with the 10-year coverage, however, is if he had to accept the renewal premium in year 11. Then the average cost per year would rise to $2,270 over 20 years.

If Dave was still not in a position of having the necessary cash flow to support the higher 20-year premium, all is not lost. Many 10-year renewable term policies now have a provision that the policy can be converted to 20-year term in the first 5 to 7 policy years without a medical. When Dave’s income rises or some of his debt is reduced then the increased cash flow can be used to change to policy to a longer term. Remember, while the longer term is more appropriate for most individuals the important thing is to have the proper amount of coverage.

Depending on circumstances, in many situations 20-year term coverage may not even be long enough. Terms of 30 years or longer are available. One common and recommended strategy is to layer your coverage. For example, in Dave’s case, even after 20 years when his children have grown, been educated and left the house (hopefully), there will probably still remain a need for some life insurance to protect Dave’s spouse. With this in mind, Dave could start with a foundation of longer term or even permanent coverage and add to it coverage with a shorter-term period.

Let’s discuss your circumstances, objectives and cash flow to enable you to build an insurance portfolio that will best suit your needs.

As always, please feel free to share this article with anyone you think would find it of value.

Rates shown are from a major Canadian Insurance company and are current at the time of this article.

Life Insurance and the Capital Dividend Account

by Foresight Financial | Apr 1, 2025 | Blog, business owners, corporate, Insurance, life insurance

Many business owners are unaware that corporate owned life insurance combined with the Capital Dividend Account (CDA) provides an opportunity to distribute corporate surplus on the death of a shareholder to the surviving shareholders or family members tax-free.

Income earned by a corporation and then distributed to a shareholder is subject to tax integration which results in the total tax paid between the two being approximately the same as if the shareholder earned the income directly. Integration also means that if a corporation is in receipt of funds which it received tax-free, then those funds should be tax-free when distributed to the shareholder.

The Capital Dividend Account is a notional account which tracks these particular tax-free amounts accumulated by the corporation. It is not shown in accounting records or financial statements of the corporation. If there is a balance in the CDA it may be shown in the notes section of the financial statements for information purposes only.

Generally, the tax-free amounts referred to, are the non-taxable portions of capital gains received by the corporation and the death benefit proceeds of life insurance policies where the corporation is the beneficiary.

Life insurance proceeds received by a private corporation

The death benefit of a life insurance policy that is owned by a private Canadian corporation less the adjusted cost basis (ACB) of that policy, can be credited to the Capital Dividend Account. The government’s reasoning in deducting the ACB from the CDA credit is that if the corporation had paid the premiums to the individual shareholder to pay for the insurance, those payments would have been taxable.

In calculating the ACB, the following factors are taken into account:

Premiums or deposits made to the policy increase the ACB;
Policy loans, paying of dividends in a participating policy and partial dispositions reduce the ACB;
Repaying policy loans, purchasing paid-up insurance and adding any term insurance riders increase the ACB;
The annual net cost of pure insurance (NCPI) reduces the ACB.

The NCPI is the pure mortality cost of the life insurance and is contained in a table in the Income Tax Act. The NCPI, which increases each year with age, is applied to the net amount at risk in determining the reduction of the ACB for that policy year. The net amount at risk is defined as the total death benefit minus the cash value of the policy.

Normally, the ACB of the policy increases each year ultimately resulting in a total erosion. Once the ACB reaches zero, the full amount of the death benefit is eligible for Capital Dividend Account credit.

Frequently asked questions about the Capital Dividend Account

Does the corporation have to be Canadian controlled? No. It is only required that the company is a Canadian private corporation.

Can the corporation be publicly owned? No. Only private corporations qualify.

What is the tax treatment of a Capital Dividend paid to a non-resident shareholder? Capital dividends paid to a non-resident shareholder are subject to a withholding tax. In the absence of a resident of a country without a Canadian tax treaty the withholding tax is 25%. With a tax treaty, the rate will be reduced. For an individual living in the U.S. for example the withholding rate would be 15%. The capital dividend would most likely be taxable to the non-resident in their own country.

Does the company still get a CDA credit when a policy is assigned to a bank and the death benefit is paid directly to the lender? Yes. Although the proceeds of the life insurance policy may never actually be received directly by the corporation, it still creates a CDA balance equal to the total death benefit minus the ACB of the policy.

For many business owners the ability to have life insurance paid with lower taxed corporate dollars and still be able to have the proceeds eventually flow to their families on a tax-free basis is an opportunity that should not be overlooked.

As always, please feel free to share this article with anyone you think would find it of interest.

Navigating Tax Deductions for Life Insurance Premiums

by Foresight Financial | Sep 2, 2024 | Blog, Insurance, life insurance

Considering that the proceeds of a life insurance policy are received tax-free upon the death of the life insured, it is not surprising that the premiums for the policy are not tax deductible. There are two circumstances, however, where premiums would be deductible for income tax purposes;

If the life insurance policy is assigned to a lending institution that requires the assignment as a condition for a loan, for either investment or business purposes.
If the life insurance policy is donated to a registered charity and the donor continues to pay the premiums on behalf of the charity.

Life insurance policies used as collateral security for a loan

The conditions under which the owner of a life insurance policy would be entitled to a collateral insurance deduction are as follows:

The loan advance must be made by a qualified financial institution that is in the business of lending money. This includes banks, finance companies, trust companies, credit unions or insurance companies. It does not include private lending arrangements such as with friends or family members;
The lending institution must require the assignment of the policy owned by the borrower as a condition for granting the loan and a formal assignment of the policy must be made. There should be a letter or other documentation on file to substantiate the lender’s requirement for the life insurance assignment;
The proceeds of the loan must be used for investment or business purposes the income of which would be taxable to the borrower;
The life insurance policy assigned can be either an existing policy or one taken out for this specific purpose.

If all of the above criteria are met the borrower is entitled to a collateral insurance deduction which is the lesser of the premium paid or the Net Cost of Pure Insurance (NCPI). NCPI is calculated from factors contained in the Income Tax Act and is applied against the net amount at risk of the insurance policy. It increases annually and is also used to determine the Adjusted Cost Basis (ACB) of the policy.

For example, let’s consider John, a 45-year-old non-smoker who wishes to purchase shares in his employer’s company. His bank will lend him the money against the collateral of those shares if he will also assign a life insurance policy on his life in the amount of the loan. John purchases a 10- year term insurance policy in the amount of $1,000,000 (the amount of the loan) which he assigns to the bank. The annual premium for this policy for 10 years is $920.00. The NCPI for the first year is $590 increasing each year. For the first year, only $590 of the annual premium is deductible. By year 3, the NCPI has increased to $1,020. In year 3, the full $920 annual premium is deductible.

As of January 1, 2017, NCPI now recognizes insureds who are rated as a substandard risk for life insurance. Prior to this date, the NCPI did not take into consideration the additional premium resulting from a substandard risk. If we assume that John was rated 200% for health reasons his annual premium for the policy would increase to $1,790. If the policy was issued after January 1, 2017, his NCPI (and collateral insurance deduction) would now increase to $1,180. By year 3 the NCPI would have increased to $2,040. For policies issued before January 1, 2017, the deduction would have been the same as if John were a standard risk.

Where the owner is a business

Canadian private corporations are also able to claim the collateral insurance deduction on policies they own on the life of a shareholder or key person that is assigned to a lending institution as a condition of a loan for either investment or business purposes. This can also have the added advantage of the proceeds of the life insurance policies creating a Capital Dividend Account (CDA) which can be paid tax free to shareholders of the corporation.

For example if John, in the previous example, were a shareholder of his company and the bank required $1,000,000 of coverage to facilitate a loan which the company was going to use for expansion, the company would be entitled to deduct the NCPI (or premium paid, if the lesser) from business income. Should John die and the $1,000,000 of insurance proceeds were paid to the bank to repay the loan, the company would still be entitled to credit the death benefit less the ACB of the policy to the Capital Dividend Account even though the company retained none of the proceeds. As a result, retained or future earnings could be paid to the surviving shareholders tax free up to the amount of the CDA balance.

Life insurance policies donated to a charity

Gifting a life insurance policy results in a charitable tax credit based on the value of the policy at the time of the gift. This usually means cash surrender value. Premiums paid for the policy receive the charitable tax credit when those premiums continue to be paid by the donor on behalf of the charity that now owns the policy.

For policies that only have the charity named as a beneficiary there is no immediate deduction. When the insured dies, however, the death benefit is considered to have been immediately donated before the donor’s death. A tax credit is available on the insured person’s final return for the year of death and for the year before death.

Generally, life insurance premiums are not tax deductible. These are two situations that may be deductible if structured properly. It is always advisable to seek the advice of a qualified advisor when dealing with income tax related issues.

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Strategies for Multi-Generational Planning

by Foresight Financial | Jul 1, 2024 | Blog, critical illness insurance, disability, disability insurance, Estate Planning, Family, Insurance, life insurance, long term care

The Sandwich Generation was a term coined by Dorothy Miller in 1981 to describe adult children who were “sandwiched” between their aging parents and their own maturing children. There is even a term for those of us who are in our 50’s or 60’s with elderly parents, adult children and grandchildren – the Club Sandwich. More recently, the Boomerang Generation (the estimated 29% of adults ranging in ages 25 to 34, who live with their parents), are adding to the financial pressures as Boomers head into retirement.

It is estimated that by 2026, 1 in 5 Canadians will be older than 65. This means fewer adults to both fund and provide for elder care. Today, it is likely that the average married couple will have more living parents than they do children.

What are the challenges?

The truth is that many members of the Sandwich Generation find the circumstances are both emotionally and financially draining. In the past, women have been looked upon to provide the primary care giving in the home while men take care of the income needs. Today, roles have changed with the majority of working age women employed outside of the home. As a result, financially, both parents are looked upon to provide for the family. For The Sandwich Generation helping their parents and their children at the same time, creates stress that can affect both their mental and physical health.

Risk Management in the Sandwich Generation

Having an effective financial plan becomes key in dealing with the challenges. As the main breadwinner in this situation, it is possible that three generations are dependent upon you. One of the first issues to be addressed then is how you protect your revenue stream.

Steps to Minimize risk for the Sandwich Generation

Have an open and clear discussion about family resources and needs – The older generation needs to have a discussion with their children so that everyone knows what steps have or have not been taken to provide for the senior’s care when they are no longer able to care for themselves. This would also be a good time to initiate or continue any talk about what liquidity needs exist for taxes, long term care, funeral costs and last expenses etc.
Complete a life insurance needs analysis – Where there is not sufficient capital to continue family and dependent’s income at the death of a breadwinner, life insurance can provide the necessary funds required to maintain lifestyle, pay debt, reduce mortgages, fund children’s education and provide money for aging parent’s care. Life insurance is an affordable way to guarantee future security.
Review your disability and critical illness coverage – If there is not sufficient income that will continue to be paid should you become unable to work due to sickness or accident, consider long term disability coverage. Critical illness insurance will provide needed capital in the event of diagnosis of a life-threatening illness or condition. Not only will this provide financial support but will also improve your chances of recovery without the financial stress that often accompanies such a condition.
Investigate Long Term Care Insurance – Having the appropriate amount of LTC insurance will help to reduce the stress of having to care for a parent when they are no longer able to fully care for themselves. Consider having all the siblings share the cost.
Draft a Living Will or similar Representation Agreement – Making your wishes known to your loved ones in the event you are no longer capable of making medical decisions will go a long way to providing comfort to all concerned when difficult choices need to be made.

As you can see, being part of the Sandwich Generation can be very stressful – emotionally and financially. Having someone to talk to or being part of a support group dealing with this issue, will certainly help manage the emotional challenges.

Let’s connect soon to discuss what strategies you may need to implement to provide the financial security your family needs.