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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!

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.

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.


Next steps

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.


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