As an optometrist, your focus is likely on growing your practice, advancing your career and ensuring your financial security. Have you considered how life insurance can do more than just protect your loved ones in the event of your passing? When used strategically, permanent life insurance can also become a powerful tool for building wealth and supporting your long-term financial goals.
Beyond Protection: How Life Insurance Can Build Cash Value
At its core, life insurance is designed to provide financial security for your loved ones after you’re gone. Permanent life insurance (such as Whole Life or Universal Life policies) also offer a cash value component that can grow over time. This cash value can further accumulate through additional deposits made beyond the basic premiums used to cover the cost of insurance. As an added perk, this growth is tax-deferred.
Tax Advantages: Maximize Your Earnings
One of the most powerful features of permanent life insurance is its tax benefits.
The death benefit proceeds are tax-free to your beneficiaries, ensuring that your family receives the full value of the policy.
For optometrists who own their practice, the majority of the proceeds from a corporate-owned life insurance policy flows into the notional Capital Dividend Account, allowing for tax-free capital dividends to be declared to the shareholders.
Additionally, the cash value grows tax-deferred and permits you access to these funds during your lifetime, often without immediate tax consequences, which can be a valuable option if you’re in a higher tax bracket.
Accessing the Cash Value of your Permanent Life Insurance Policy
- Policy Loans: A key advantage of permanent life insurance is the ability to borrow against the cash value of your policy. These policy loans don’t require credit approval, making them an attractive option for optometrists seeking funding for personal or business needs, including a partner retirement buy back.
- Collateral Loans: Up to 90% of the cash value of the policy can be used as collateral with special lenders. These loans often offer more flexible terms than traditional loans, making this a great option to support cash needs.
- Withdrawals: If you prefer not to borrow, you can also withdraw cash from your policy. Unlike loans, withdrawals can trigger a taxable gain that hits your bottom line with a 100% inclusion rate. Withdrawals also reduce the total death benefit and growth potential of your policy.
Investing Within Your Insurance Policy: A Smart Way to Grow Wealth
Many optometrists are already familiar with investment options like stocks, bonds, and mutual funds. Did you know you can also invest within your life insurance policy?
With a Universal Life policy, you can allocate your policy’s cash value into investment options such as money market funds or mutual funds, which can offer higher returns than the dividend rates offered with traditional Participating Whole Life policies.
The flexibility to tailor your investments to suit your risk tolerance and financial goals within a Universal Life policy will appeal to those who like to take a more active role with their investments.
These growth opportunities are a great option to further diversify your overall wealth creation strategy with the stability of life insurance as part of your portfolio.
Supplementing Retirement: Build a Safety Net for Your Future
As an optometrist, retirement might feel like a distant goal while you’re focused on growing your practice and family life. However, the cash value accumulated in your permanent life insurance policy can be accessed in the future to supplement your retirement income, giving you an extra layer of financial security.
This can be particularly beneficial if you’ve maxed out other retirement accounts or want additional flexibility in how you draw income. Remember, flexibility is key when managing your taxable income in retirement.
Estate Planning: Preserve Your Legacy
As you build your optometry practice and personal assets, a well-structured life insurance policy can help ensure that your loved ones aren’t burdened with excessive estate taxes or an urgent need to liquidate assets.
For those with business partners, life insurance is a much more cash effective means to buy out the deceased’s portion of the practice compared to securing bank funding or paying the estate out of profits.
Conclusion: Secure Your Future with Smart Insurance Planning
Permanent life insurance is more than just an estate tool—it’s an investment strategy that can help you grow wealth, reduce taxes, and plan for the future. By leveraging the cash value, taking advantage of tax benefits, and using policy loans or withdrawals, you can create a robust financial plan that supports both your personal and professional goals.
Remember, life insurance is a long-term commitment. Be sure to work with a financial advisor who understands your needs as an optometrist and can help you design a coverage strategy that fits into your broader financial strategy.
Unsure how permanent life insurance can work for you or your practice? Reach out to Roxanne via email at roxanne@c3wealthadvisors.ca or call 780-261-3098 to arrange a conversation.
Roxanne Arnal is a Certified Financial Planner®, former Optometrist, Professional Corporation President, and practice owner. She is dedicated to Empowering You & Your Wealth through smart financial decisions that bring more joy and laughter to your life.
These articles are for information purposes only and are not a replacement for personal financial and tax planning. Individual circumstances and needs vary. Errors and Omissions exempt.
ROXANNE ARNAL,
Optometrist and Certified Financial Planner
Roxanne Arnal graduated from UW School of Optometry in 1995 and is a past-president of the Alberta Association of Optometrists (AAO) and the Canadian Association of Optometry Students (CAOS). She subsequently built a thriving optometric practice in rural Alberta.
Roxanne took the decision in 2012 to leave optometry and become a financial planning professional. She now focuses on providing services to Optometrists with a plan to parlay her unique expertise to help optometric practices and their families across the country meet their goals through astute financial planning and decision making.
Roxanne splits EWO podcast hosting duties with Dr. Glen Chiasson.
