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Cascading Life Insurance: A Simple and Smart Way to Pass on Wealth

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If your clients want to pass down money to their kids or grandkids in a smart and tax-friendly way, the cascading life insurance strategy could be the answer. It helps wealthy families grow and protect their money across generations, while avoiding many of the taxes, fees, and delays that come with traditional estate planning. This method is particularly useful for affluent grandparents who may not be insurable and who want to leave a lasting legacy for their children and/or grandchildren.

 

How It Works


A parent or grandparent buys a permanent life insurance policy on their child or grandchild. They own and pay for the policy and can transfer it later, either while alive or after they pass away. The child or grandchild is the person insured.


Why Clients Like This Strategy


1. Tax-Free Growth

Money inside the policy grows without being taxed each year. This means more money stays invested for the family instead of being lost to tax bills.


2. Tax-Free Transfer

When the original owner gives the policy to their child or grandchild, there are no taxes owed on the transfer. That’s a big advantage compared to other investments, which usually trigger tax when passed on.


3. Avoid Probate

By setting up the policy properly (naming the child as a contingent owner), it can skip the estate process and go directly to the next owner. This avoids legal delays, court fees, and keeps things private.


4. Access to Cash

The policy builds cash value over time. The new owner (the child or grandchild) can use that money later for school, buying a house, or starting a business. Just keep in mind that taking money out might lead to taxes and lower the final payout.


5. Locked-In Insurance

Buying life insurance for a child or grandchild now means they’ll be covered for life, even if their health changes. It also costs less than if they wait until they’re older.


6. Builds Long-Term Security

The adult child who eventually owns the policy gets a useful financial tool, something they can manage, borrow against, and use to help their own kids later on.


Who This Strategy Is For


This approach works best for clients who:

  • Have lots of money outside of RRSPs and TFSAs (non-registered investments)

  • Can’t get life insurance themselves due to age or health.

  • Want a clean, private way to pass on wealth.

  • Are worried about high taxes and fees when transferring their estate.


Advisors: Let’s Help Clients Build a Legacy


If you work with high-net-worth families, this is a strategy you should be talking about. It’s a great fit for clients who want to pass on wealth efficiently, protect their family’s future, and reduce taxes and estate headaches.


  • Start by identifying clients with large non-registered assets and who are no longer insurable.

  • Explain the benefits of insuring their children or grandchildren now.

  • Show how this strategy keeps more money in the family, tax-free.


Want to see how this could fit into your client’s financial plan? Reach out today and let’s explore how cascading life insurance can help them leave a lasting legacy.



Tony Gallippi 

Director, Advanced Planning, Insurance

QFS


 
 
 
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