The Benefits of Leveraged Life Insurance For Real Estate Investors

The Benefits of Leveraged Life Insurance For Real Estate Investors

Infinite Banking Concept, Immediate Financing Arrangement, it goes by many names de­pend­ing on who you ask.

I sim­ply re­fer to it as “leveraged life in­sur­ance”

It can be struc­tured in many ways, us­ing dif­fer­ent types of in­sur­ance prod­ucts, but it al­most al­ways fol­lows the same ba­sic prin­ci­pals…

  1. Purchase a life in­sur­ance prod­uct with cash value
  2. Use the cash value as col­lat­eral for a loan
  3. Redeploy the bor­rowed money into an­other in­vest­ment ve­hi­cle

What you end up with is (hopefully) a smart, tax-ef­fi­cient, and am­pli­fied rate of re­turn, and a larger life in­sur­ance pol­icy than you would nor­mally be able to af­ford on its own.

The struc­ture can be based on a sin­gle life, a joint life, a whole life pol­icy, a uni­ver­sal life pol­icy, a cor­po­rate owner, or a per­sonal owner. The devil is in the de­tails.

These are some of the most com­plex, but pos­si­bly most lu­cra­tive tax and in­vest­ment struc­tures avail­able to Canadians. Generally re­served for so­phis­ti­cated in­vestors who un­der­stand the power (and risks) of lever­aged in­vest­ments.

AKA, your typ­i­cal real es­tate in­vestor.

Interested? Then keep read­ing.


Kim and Jake are a 45-year-old cou­ple with two kids aged 15 and 12. They are sea­soned vet­er­ans of the real es­tate game and have built a strong port­fo­lio of rental prop­er­ties over the course of the last 10 years. In ad­di­tion to the rental prop­er­ties, they have rather large de­fined con­tri­bu­tion pen­sion plans, full ben­e­fits, maxed out TFSAs, and a large pool of RESP as­sets for their chil­dren’s ed­u­ca­tion fund.

Both Kim and Jake are high in­come earn­ers pay­ing tax at the top mar­ginal rate.

They re­cently sold an un­der-per­form­ing prop­erty and re­ceived a mod­est in­her­i­tance from Jake’s un­cle are flush with ex­cess cash.

Not in­ter­ested in di­rectly pur­chas­ing and man­ag­ing any more prop­er­ties them­selves, they de­vel­oped an in­ter­est in en­ter­ing joint-ven­ture pro­jects with less ex­pe­ri­enced in­vestors and high-yield sec­ond mort­gages. They were con­fi­dent that they could gen­er­ate a long term 8.5% re­turn on in­vest­ment on such a strat­egy.

They had a bud­get of $50,000 per year for the re­main­der of their work­ing lives for this strat­egy which they could eas­ily meet as they had ex­cess dis­cre­tionary in­come every year and ac­cess to a pool of un­used cash from the sale of their rental prop­erty.


Jake’s un­cle re­cently passed away and Jake’s fa­ther was the es­tate trustee. Jake’s un­cle was a suc­cess­ful real es­tate in­vestor in his own right.

What Jake wit­nessed though was a bit un­set­tling.

Jake’s un­cle did not plan his es­tate trans­fer very well. He had a will, but it had­n’t been up­dated in over a decade. He also had sev­eral ex­tremely high value prop­er­ties scat­tered around the GTA, some of which he had pur­chased in the 1980’s.

Jake’s un­cle’s es­tate ran into the fol­low­ing is­sues:

  1. Tax is­sues: since Jake’s aunt passed away many years ago, Jake’s un­cle was not able to achieve a hor­i­zon­tal trans­fer of as­sets to a spouse and his ben­e­fi­cia­ries and es­tate trustee were SHOCKED by the amount of tax due upon fil­ing his fi­nal tax re­turn.
  2. Liquidity is­sues: Jake’s un­cle had 3 chil­dren whom he wanted to pro­vide for equally. 2 of his chil­dren were real es­tate in­vestors them­selves, the third had zero in­ter­est in real es­tate and pre­ferred a cash in­her­i­tance.

This com­pli­cated the sit­u­a­tion be­cause the es­tate was ASSET rich but CASH poor, leav­ing very lit­tle to pay the mas­sive tax bill and noth­ing to equal­ize the as­sets among the chil­dren.

The re­sult was:

  1. Prolonged fight­ing among the ben­e­fi­cia­ries
  2. Significant le­gal fees to rec­tify the sit­u­a­tion
  3. The “flash” sales of sev­eral high-qual­ity prop­er­ties to fund the tax bill and other fi­nan­cial oblig­a­tions of the es­tate

Kim and Jake were not in­ter­ested in hav­ing his­tory re­peat it­self with their es­tates.


Kim and Jake wanted to en­sure their es­tate trans­fer was as smooth as pos­si­ble. Their chil­dren were young, and it was hard to tell if both would be in­ter­ested in man­ag­ing prop­er­ties down the road. However, they wanted to set their es­tate up in a man­ner that al­lowed for the cre­ation of in­ter-gen­er­a­tional wealth.

We sat down with them and pre­pared an es­tate tax pro­jec­tion…

The re­sults had them ab­solutely floored!

Property - Prices - Recapture

We pro­jected a mod­est 4% growth rate on their prop­er­ties lead­ing to a tax bill of just over $6 mil­lion.


Lucky for Kim and Jake they were both young, healthy, and non-smok­ers. This al­lowed them to ob­tain a well-priced Whole Life Insurance Policy and im­ple­ment an Immediate Financing Arrangement (“IFA” for short).

An IFA (sometimes called “Infinite Banking”) is a strat­egy for fam­i­lies who:

  • Have a need for a per­ma­nent life in­sur­ance pol­icy to fund a sig­nif­i­cant cash need at death
  • Have ex­cel­lent cash flow and/​or a siz­able pot of tax­able in­vest­ments
  • Have ac­cess to in­vest­ment op­por­tu­ni­ties such as busi­ness ex­pan­sion, real es­tate, stocks, or other as­set classes

The Immediate Finance Arrangement strat­egy of­fers ad­van­tages that may as­sist with cash ac­ces­si­bil­ity while main­tain­ing fi­nan­cial in­ter­ests and pro­vid­ing valu­able life in­sur­ance pro­tec­tion.

Kim and Jake pur­chased a per­ma­nent tax-ex­empt life in­sur­ance pol­icy. They made pay­ments into the pol­icy to cre­ate cash val­ues and then col­lat­er­ally as­sign the pol­icy in ex­change for a loan. The loan pro­ceeds were to be rein­vested to pro­duce in­come from a busi­ness or prop­erty.

If the loan pro­ceeds are rein­vested, the in­ter­est paid on the loan and all or a por­tion of the pol­icy pre­mi­ums may be tax de­ductible. Kim and Jake, along with their ad­vi­sors en­sured the loan and the col­lat­eral as­sign­ment of the life in­sur­ance pol­icy met all re­quire­ments for de­ductibil­ity un­der the Income Tax Act.

Bank Lends Money

The re­sult­ing struc­ture looked like this:

$50,000 per year con­tributed to the pol­icy over a 20-year pe­riod

A high cash-value, whole life in­sur­ance pol­icy was cho­sen to max­i­mize bor­row­ing ca­pac­ity

Upon the sec­ond an­nual pay­ment Kim and Jake ob­tained a line of credit se­cured against the pol­i­cy’s cash value

Kim and Jake im­me­di­ately bor­rowed back the prior year pol­icy pre­mium and re-in­vested the cash into joint-ven­ture in­vest­ments, eq­ui­ties, and 2nd mort­gage in­vest­ments

Kim and Jake paid the monthly in­ter­est on the loan from their own cash-flow, took a tax de­duc­tion for the in­ter­est pay­ments along with a col­lat­eral in­sur­ance de­duc­tion, then bor­rowed back the af­ter-tax cost of in­ter­est

The strat­egy pro­vided the fol­low­ing ben­e­fits:

  1. Allows for at­trac­tive 6%+ ROI on the CSV TAX-FREE
  2. Borrowing up to 90% LTV is smooth
  3. LOC not re­ported to credit bu­reaus in Canada
  4. Multiple tax de­duc­tions in­clud­ing:
    1. Interest de­duc­tion on per­sonal taxes
    2. Collateral in­sur­ance de­duc­tion on per­sonal taxes
  5. Flexibility to build di­verse sec­ond port­fo­lio in­clud­ing:
    1. Real-estate or JVs
    2. Second mort­gages
    3. Any other tax­able in­vest­ment

In fact, the cou­ple was pro­jected to main­tain ex­cel­lent cash flow and would only be out of pocket in year 1.


Based on the pro­jec­tions, the cou­ple was able to si­mul­ta­ne­ously build:

  • An at­trac­tive, tax-de­ferred, whole life pol­icy
  • A large and di­ver­si­fied in­vest­ment port­fo­lio
  • Continued real-es­tate in­vest­ment through joint ven­tures

The com­bined re­sults were pro­jected to be sig­nif­i­cantly bet­ter than ei­ther the in­sur­ance pol­icy or the port­fo­lio alone.

Leveraged Strategy
Strategy Comparison


Are you frus­trated with the level of tax you’re pay­ing? Do you feel like tax ad­vi­sors and fi­nan­cial ad­vi­sors aren’t speak­ing the same lan­guage? Are you of­ten left won­der­ing if you are leav­ing money on the table due to a lack of in­te­grated plan­ning?

Fabio and his team have been help­ing clients plan their tax, re­tire­ment, and es­tate mat­ters since 2002.

If you’re in­ter­ested in tak­ing con­trol of your fi­nan­cial mat­ters, then don’t hes­i­tate to con­tact us di­rectly for an ini­tial con­ver­sa­tion.

No cost, no oblig­a­tions.