Important: Insurance & Segregated Funds (Not Mutual Funds)
This case study discusses investments within a universal life insurance policy. These investments are segregated funds (or similar investment options inside the policy), regulated under the Insurance Act. This case study does not discuss or compare mutual funds offered through WhiteHaven Securities Inc.
Read the Full Explainer: How Universal Life Insurance Works →
The Setup
A 47-year-old incorporated business owner in Quebec has substantial active business income and retained earnings. He directs $300,000 per year for 10 years into his holding company - $3 million total. He wants investment control: the ability to choose specific funds inside the policy. After year 10, deposits stop. The policy continues to grow on its own.
Two ways to deploy this capital. Same person. Same corporation. Same dollars.
Two Paths for the Same Capital
Universal Life vs Whole Life: Why This Case Study?
Universal life offers investment control: you select the funds inside the contract. Whole life does not. If you want to manage allocations, rebalance, or choose specific ETFs, universal life is the structure. The trade-off: you bear investment risk. Values can decline in a down market. This illustration assumes 5% net growth (after management and UL fees).
See the Whole Life comparison for the insurer-managed alternative.
What the Illustrated Values Look Like
Based on a universal life policy illustration with 5% net growth assumption. Values are non-guaranteed and depend on investment performance. Actual results will be higher or lower. Universal life carries market risk.
| Age | Year | Total Deposited | Fund Value | Death Benefit | Net to Family (UL insurance) | Net to Family (Taxable portfolio) |
|---|---|---|---|---|---|---|
| 48 | 1 | $300,000 | $299,201 | $5,799,201 | $5,674,767 | $185,679 |
| 52 | 5 | $1,500,000 | $1,645,012 | $7,145,012 | $6,528,862 | $1,055,826 |
| 57 | 10 | $3,000,000 | $3,740,165 | $9,240,165 | $8,026,540 | $2,475,230 |
| 58 | 11 | $3,000,000 | $3,917,836 | $9,417,836 | $8,214,054 | $2,624,416 |
| 62 | 15 | $3,000,000 | $4,720,510 | $10,220,510 | $9,073,291 | $3,289,855 |
| 67 | 20 | $3,000,000 | $5,966,642 | $11,466,642 | $10,444,349 | $4,300,468 |
| 72 | 25 | $3,000,000 | $7,463,732 | $12,963,732 | $12,159,264 | $5,554,223 |
| 77 | 30 | $3,000,000 | $9,178,258 | $14,678,258 | $14,252,100 | $7,109,614 |
| 85 | 38 | $3,000,000 | $12,037,071 | $17,537,071 | $17,537,071 | $10,413,198 |
"Net to Family" = after-tax amount retained by shareholders. UL assumes 5% net growth (after management and UL fees). Taxable portfolio assumes 6% return (illustration rate + 1%) split across interest (30%), dividends (20%), realized capital gains (30%), deferred capital gains (20%). Corporate tax 42%, shareholder dividend tax 42%.
The Hidden Cost of Path A
The tax on investment returns is only the beginning. A $3 million taxable portfolio earning 6% generates $180,000 in annual passive income. That triggers the full SBD grind-down.
Your operating company's tax rate jumps from the small business rate to the general corporate rate - not because it earned more, but because your investment portfolio generated passive income. The universal life policy generates no passive income. The SBD stays intact.
Note: Assumes no other significant passive income. If the corporation already has passive income that eliminates the SBD, this additional cost would not apply.
At Death: How Much Reaches the Family?
At age 85, the illustrated death benefit is $17.54 million - all flowing through the CDA to the family, tax-free. The same $3 million in a taxable corporate portfolio at 6% delivers $10.41 million net to the family after all taxes. That's a gap of $7.12 million on the same capital - before adding the SBD grind-down impact on operating income.
Universal Life: Costs and Risks to Consider
Universal life makes sense when you want investment control and are comfortable managing the risk. Whole life makes sense when you want the insurer to bear the investment risk. Both shelter growth and transfer value through the CDA.
Next Step
How would your capital compare on both paths? A personalized universal life illustration shows net-to-family at key milestones based on your age, investment profile, and corporate structure.
Request a Personalized Illustration