by manish pandye
Published Wed, Feb 22nd 2017, 14:42 | Finance
Nowadays, we can't afford to be blind to the financial hardship families are facing. The average family has about 10% less disposable income today compared to two years ago. Higher taxes, lower wages, job loss, constant uncertainty, and rising inflation all mean that you have less money than ever. And yet, you work just as hard as anyone else. You're not working less, are you?
Well, here is the problem. Most people know how to work for money but don't know how to make their money work for them. They fail to plan, through no fault of their own. It's just that nobody has taken the time to teach them how to properly save and invest. You don't learn this stuff from your parents or in schools, so you really need to sit down with someone in the financial services industry to learn why and how to save and invest properly in order that you don't gamble with your future.
One of the best kept secrets that the Canadian Revenue Agency don't want you to know about is how to legally not pay taxes on some investments. There are basically three ways we pay taxes. The first way is to "pay now", that is, to pay on all goods and services as we purchase them and there is really no way around this. The second way is to "pay later". Here we get a tax break to encourage us to save for retirement so that the government don't have to carry the burden through social programs such as the allowance and the guaranteed income supplement during our later years. And the third way is to "pay never" which is done through an insurance policy.
Of course the Canadian Revenue Agency don't want you to put all your money into the insurance policy and never pay taxes, so they have set a limit to how much you can invest within the policy. The limit will depend on the face value of the policy and the company you choose to get it from, but generally, policies with higher face values will have higher limits.
So how exactly would you do this? Well it is done using a universal Life insurance policy, generally referred to as a UL policy. These policies have two components to them; an insurance component and an investment component. Investments are made into the policy on a predetermined frequency up to an annual limit as defined by the Canadian Revenue Agency. The investments then grow tax-free; and the policy premium and other charges required to fund the policy is paid from the investment portion.
Usually in the later stages of life, life insurance is no longer required and the investments can then be used to fund retirement, medical expenses or other wants and needs. To do this, the policy can then be collaterally assigned to a lending institution, usually a chartered bank, with absolutely no tax implications because we do not pay taxes on loans. However, we do pay interest on loans but this is minimal compared to most people's marginal tax rate of between 30 to 40 percent. So the interest charges are substantially lower than paying taxes on it.
The loan will then be paid back from the death benefit of the policy and any outstanding balance is then paid out to the designated beneficiary, tax free. Thus, bypassing probate and any other additional cost like legal, accounting and trustee fees. There is also an added benefit of protection against creditors, providing that the policy was not intentionally setup for this reason.
But here is the catch, not everybody can get life insurance. You see, life insurance is not one of those things you can just buy when you need it. It is something that you have to apply for Tax Saving Investment and there is no guarantee that you will be accepted. Your chances of getting life insurance are much better, and more affordable, when you are younger. Getting the right policy that ensures you have income protection today and increasing wealth accumulation for tomorrow can be a challenge.
Article Source: http://EzineArticles.com/6424104