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What Is an Insured Retirement Plan?

Investing in your future is necessary for retirement, but many Canadians aren’t aware of all of their financial options. If you’re looking to maximize your savings, an insured retirement plan may help. What is an insured retirement plan, and how do they work?

Continue reading to learn about insured retirement plans, including what they are, how they work, and when you may benefit from one.

A young couple reviews their retirement planning.

How Can You Build Towards Your Retirement?

Retirement is the end goal for many Canadians, a time when you can enjoy everyday life without having to work. Before you can focus on golfing, vacationing, or spending time with family, you must save enough to retire comfortably.

Some of the common ways to save for retirement today are RRSPs and TFSAs:

  • An RRSP is a registered retirement savings plan where you save & invest for your future. You place pre-tax money into your RRSP & let it grow tax-free until you withdraw it. You have a maximum amount you can contribute to your RRSP each year—there isn’t unlimited contribution room.

  • TFSAs are tax-free savings accounts you can use to save money tax-free. Many Canadians use these accounts to invest & grow their wealth with time. You have a maximum amount you can contribute to your TFSA each year.

While RRSPs and TFSAs are common ways to save for retirement, a prudent saver may have already begun using these financial options. If you’ve maxed out your RRSP and TFSA or are looking for a new way to save for retirement, you may benefit from an insured retirement plan.

What Is an Insured Retirement Plan?

An insured retirement plan (IRP) is a way to invest in your future while protecting what you currently have. It uses life insurance to help you invest and secure future funds for your retirement, letting you enjoy life outside of the workforce.

Think of an IRP as a 2-for-one combo—you invest into your policy to build tax-free money while protecting your loved ones with your life insurance. This life insurance policy is permanent, and you can make withdrawals from your policy in the form of a loan to access funds without being taxed.

How Does an Insured Retirement Plan Work?

An IRP works over many years, depending on when you begin your policy.

You typically start an IRP when you’re in the money-making parts of your life, building up for the future. You earn money with your IRP as your work and pay for your insurance. In retirement, you take out a loan to finance your needs, and your insurance benefit repays your loan after death.

IRPs work in 3 stages throughout someone’s life:

  • Accumulation: You begin your IRP by purchasing permanent life insurance with the option to invest. As you work, you pay premiums on the insurance. As time goes on, these investments grow, similar to how an RRSP or TFSA works.

  • Withdrawing the loan: An IRP provides someone with a life insurance policy with investments once they retire. While these funds can’t be taken out without taxation, someone can take a bank loan instead. An annual loan becomes that person’s retirement income, with the policy itself used as collateral & no requirements to make payments on this loan.

  • Repaying the loan: Upon death, the benefit of the policy helps repay the loan taken out. Any investments in the policy go to the chosen beneficiaries tax-free, providing them with financial security for the future.

A mature couple embracing at the beach.

Is an Insured Retirement Plan Right for Your Financial Needs?

An IRP can benefit you if you have already maxed out the contribution room in your RRSP and TFSA. Consider an IRP another way to make tax-free money and fund your future. It’s important to note that an IRP is helpful, but only if you have enough money to fund your policy beyond its beginnings.

IRPs may not be ideal if you’re close to retirement or lack the finances to fund your policy. If you’re on the fence about committing to an IRP, speaking with a financial expert can help. They can address any questions or concerns and recommend if an IRP is a good financial decision for your needs.

Plan for Retirement With Help from a Professional

Retirement can seem like years or decades away, but it’s never too early to begin investing in your future. Financial tools like insured retirement plans can help you save, but many people get lost in the details. Consulting a professional can help you make beneficial financial decisions and maximize your savings.

Contact your local financial expert if you’re interested in an insured retirement plan or have questions about your savings.

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