Important: Insurance Products (Not Mutual Funds)
This case study discusses life insurance products and their tax treatment. Life insurance is 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 Participating Whole 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. After that, the 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
What the Illustrated Values Look Like
Based on a participating whole life policy illustration at the current dividend scale. Non-guaranteed values assume the current dividend scale remains unchanged. Actual results will be higher or lower.
| Age | Year | Total Deposited | Cash Value | Death Benefit | Net to Family (Insurance) | Net to Family (Taxable) |
|---|---|---|---|---|---|---|
| 52 | 5 | $1,500,000 | $1,163,689 | $7,661,687 | $7,002,281 | $997,955 |
| 57 | 10 | $3,000,000 | $3,188,348 | $10,829,996 | $9,540,163 | $2,334,428 |
| 62 | 15 | $3,000,000 | $4,669,460 | $11,108,765 | $9,909,898 | $3,094,017 |
| 67 | 20 | $3,000,000 | $6,048,252 | $11,796,309 | $10,753,422 | $4,040,242 |
| 72 | 25 | $3,000,000 | $7,800,122 | $12,907,053 | $12,109,789 | $5,222,115 |
| 77 | 30 | $3,000,000 | $10,040,272 | $14,509,372 | $14,093,931 | $6,702,298 |
| 82 | 35 | $3,000,000 | $12,805,459 | $16,669,077 | $16,669,077 | $8,561,084 |
| 85 | 38 | $3,000,000 | $14,743,258 | $18,249,607 | $18,249,607 | $9,899,844 |
"Net to Family" = after-tax amount retained by shareholders. Alternative investment assumes 6% return split across interest (30%), dividends (20%), realized capital gains (30%), deferred capital gains (20%). Corporate tax 50%, shareholder dividend tax 45%.
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 whole 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 $18.25 million - all flowing through the CDA to the family, tax-free. The same $3 million in a taxable corporate portfolio at 6% delivers $9.9 million net to the family after all taxes. That's a gap of $8.35 million on the same capital.
What a Taxable Portfolio Needs to Match
The illustration calculates the exact pre-tax rates of return other asset classes would need to deliver the same net amount as the insurance path at age 85. The after-tax IRR on the life insurance policy is 5.50%. To match it:
Three Reasons the Window Is Narrowing
The capital is already inside your corporation. The question is what happens to it over the next 25 to 35 years - and how much survives extraction to reach the people you built it for.
Next Step
How much could reach your family under the insurance path vs the taxable path? A personalized illustration shows your numbers at key milestones based on your age, deposit capacity, and corporate structure.
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