A Smart and Simple Way to Transfer Wealth to Your Children in Canada

How Whole Life Insurance Can Be One of the Most Powerful Gifts You Ever Give

If you’re a parent looking to create lasting financial security for your children, one of the most overlooked - but highly effective - strategies involves purchasing a participating Whole Life insurance policy on your child’s life.

This might sound unusual at first. After all, life insurance is typically thought of as a tool to replace income if someone dies unexpectedly. But when it comes to Whole Life insurance, there’s much more beneath the surface - especially if your goal is long-term tax-efficient investing and wealth transfer.

The Strategy in a Nutshell

Here’s how it works:

You purchase a Whole Life insurance policy on your child. A portion of the premiums covers the cost of the insurance, while the rest is invested inside the policy’s "cash value" component, which grows tax-sheltered over time. As the policy owner (the parent), you can retain full control over the policy for as long as you wish.

Eventually, you can transfer the policy - and all of its accumulated cash value - to your child completely tax-free. This can be done during your lifetime or as part of your estate plan.

Unlike traditional investment accounts, this strategy allows you to grow wealth without ongoing taxes and pass it on without triggering capital gains or probate.

Why Not Just Invest in a TFSA or RESP?

TFSAs and RESPs are great, but they come with contribution limits and specific rules. Life insurance on your child opens up another lane:

• Unlimited potential contributions (within limits set by the policy)
• Tax-sheltered growth for decades
• Tax-free transfer to your child
• No need for trusts, legal setups, or joint accounts

In fact, this may be one of the only strategies left in Canada that allows for long-term, tax-free investment growth and tax-free intergenerational wealth transfer outside of a registered plan.

What Are the Benefits for You?

As a parent, here’s what you gain:

• Tax-sheltered investment growth for life (and beyond)
• Control over the asset until you choose to transfer it
• Flexibility to use the policy as a collateral loan, or access the cash value in emergencies
• Simplicity - no trust documents or complex arrangements needed

In other words, you’re growing wealth in a tax-advantaged way while keeping your options open.

What Are the Benefits for Your Child?

When the time comes and you transfer the policy to your child (either during your lifetime or through your estate), they receive:

• An investment account with years of tax-sheltered growth
• Permanent life insurance coverage that stays with them for life
• Access to funds through withdrawals, policy loans, or using the cash value as collateral
• Creditor protection, in many cases, depending on the structure and province

They can use the funds however they choose - whether that’s paying for education, starting a business, buying a home, or managing health-related expenses.

If your child were to become disabled, they may also be able to withdraw the funds tax-free depending on the circumstances.

Guaranteed Life Insurance for Life

By setting up a Whole Life policy when your child is young and healthy, you lock in their insurability for life - even if they later develop medical conditions that would otherwise make them uninsurable.

This gives them a guaranteed source of coverage for their own future family - an invaluable gift.

Protection from Creditors and Matrimonial Claims

One overlooked feature of these policies is that they can provide creditor protection, both while you own them and after they’re transferred to your child - offering an extra layer of financial security, especially useful for business owners or professionals in high-liability fields.

How This Compares to a Traditional Trust

People often set up formal trusts to pass assets to their children, but these arrangements require legal documents, annual tax filings, and professional administration.

A Whole Life policy achieves a similar result - but with less complexity, no annual tax burden, and automatic tax-free transfer rules built right into the policy.

A Simple, Elegant Wealth Strategy

At its core, this is a simple strategy:

• Buy a Whole Life insurance policy on your child
• Fund it over time (within policy limits)
• Watch the investment grow, tax-sheltered
• Transfer it tax-free when you’re ready

The result? A powerful, enduring gift that sets your child up for success - and potentially helps future generations as well.

Let’s Talk About What This Could Look Like for Your Family

This article is for general information purposes only and should not be considered tax, legal, or actuarial advice. Every situation is different, and professional guidance is important.

If you’re curious how this strategy might work in your specific case, reach out to Garrett Agencies to set up a consultation. We’ll help you understand what a plan could look like based on your goals and circumstances.