Safe & Sound Insurance Blog

Life & Health

Life Insurance & Interest Rates

Amounts received from a life insurance policy in the event of a loss of life are one of the forms of income that are not taxable by the Canada Revenue Agency.

At one time, a sum of $1,000,000 dollars may have been like a large enough sum of money for an individual or small family to live off of indefinitely. This would have been especially true when many investments were providing a rate of return around 10% interest per year, effectively providing $100,000 in annual pre-tax income.

These days, with interest rates at historic lows and inflation having eaten its way into old notions of what things should cost, having a million dollars in the bank doesn't go as far as it used to. While a million dollars is no small amount of money and may a sizable enough next egg for later in life, it's likely less money than a young family would need to be entirely self-sustaining during the most expensive years of child-rearing without some adjustments in lifestyle.

With life insurance, or any other type of financial planning, it's best to set aside round numbers, even if they do sound substantial, and do the math. A 3% interest with $1,000,000 in principal would only generate $30,000 in income (which now would be taxable), substantially less than the $100,000 with interest rates of yesteryear.

Being realistic about what financial resources you would need to maintain your quality of life is a great starting place for your planning. From there, your broker can help you determine the best options for life insurance policies to meet your needs.

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