Life insurance is a solid foundation for any financial plan, providing protection for you and your family in the event of a disastrous situation. It is regarded as a necessary expense that hedges the risk of future financial loss.

But have you ever considered life insurance as simply another asset class within your overall investment portfolio?

We all have the same pools of capital within which to invest our wealth - our pension, RSP, and non-registered assets, such as equities, fixed income, mutual funds and real estate. Income derived from each of these pools of capital is taxable, as is often the annual growth and any residual value upon your death.

There is, however, another pool of capital that allows for:

• tax-deferred growth, just like within your registered pool of capital
• potential for tax-free income during retirement
• tax-free distribution of proceeds upon your death

Also, you can use some of the proceeds from this pool to fund the tax liabilities incurred within your other pools of capital. The rest can be immediately distributed to your heirs, free of cost or hassle.

This unique pool of capital is known as tax-exempt life insurance.

Under section 148(3) of the federal Income Tax Act, assets accumulate within a tax-exempt life insurance contract free of annual accrual taxation. When you pass away, any proceeds of the policy distributed to beneficiaries, including the initial insurance coverage and any accumulated assets, are done so on a tax-free basis, outside the scope of your estate.

Through the use of tax-exempt life insurance, you may be able to significantly enhance the value of your estate by transferring more wealth than you could otherwise achieve through a purely investment-driven strategy.