Top Up Your Down Payment with Life Insurance
(Seriously, it’s a thing.)
We all know that renting a place while trying to save for your first home is incredibly difficult in today’s world of soaring home prices. With a minimum down payment of roughly 10 per cent needed on an average home in Ontario, ranging from over $600,000 in a smaller city to over $1,000,000 in a housing hotspot (source) , you’ll need to save between $60K to $100K – before you even consider this next big step.
Sure, you may already have some investments – but these days, even accessing the funds in your RRSPs may not be enough. So what’s a renter looking to buy their first home to do?
Consider tapping into your existing life insurance policy to top up your down payment
Wait – what? But I don’t have a life insurance policy.
Do yourself a favour and don’t assume that you don’t have life insurance. The reality is, your parents may have purchased a policy in your name when you were just a baby – and may have forgotten to mention it as you got older. So first things first: Get on the phone with your parents and find out.
If you discover that you do indeed have a policy, that’s really, really good news. Because, guess what? That means you may be able to dip into a nifty little thing called a cash value (i.e., cash that is accumulated within the policy that can be accessed at any time) – which, coupled with your RRSPs for first-time homebuyers, can be a game-changer.
Excited yet? Told you we had good news. Here’s what you need to do next:
Step 1: Confirm you have an insurance policy with a cash value
Ask your parents if they recall purchasing a permanent life insurance policy for you. Unlike term insurance, this type of insurance never expires so the policy could still be in effect. And it comes with a guaranteed payout (i.e., the death benefit, or the money your designated loved ones or family will receive in the event of your death). This type of policy also includes the cash value we mentioned above. This is money you can access at any time, for any reason – you know, like putting a down payment on a home.
Step 2: Get good advice before you do anything else
If your treasure hunt reveals a permanent life insurance policy with access to a cash value, talk to a Serenia Life Advisor to make sure this option is right for you. After evaluating your situation, your advisor will help you answer one question: Will you be better off in the long run by taking cash out of your policy today? If the answer is ”yes,” move on to Step 3.
Step 3: Choose how to access your life insurance policy’s cash value
You have three choices when it comes to accessing cash from your permanent life insurance, and each one has its pros and cons. Assuming you and your advisor have determined that: (a) you have a permanent life insurance policy, and (b) it has a cash value, you can discuss strategies for accessing that money. Here are your options:
Give yourself a loan
You can take a tax-free loan from the cash portion of your permanent life insurance policy. Put that money toward your down payment and take your time to pay it back. If you choose not to pay it back, the amount you borrowed (plus interest) will be deducted from your payout.
Give up some of your benefits
You can take cash out of your permanent life insurance policy in exchange for reducing the amount of your payout. This is called a partial surrender (i.e., a reduction in the amount of insurance coverage your policy provides).
Trade in your policy for cash
You can fully surrender (i.e., cancel) your permanent life insurance policy in exchange for taking all of the available money in the cash portion, minus any fees that apply. Just remember that in this scenario, you’ll no longer have your life insurance coverage and will have to requalify for a policy if you want to apply for life insurance at a later time in life.
If owning a home is your goal, and you have a permanent life insurance policy that may give you a leg up, request a FREE Needs Analysis and a Serenia Life advisor will be in touch to chat about your options. We make it easy to make the right decision, based on what’s best for you.
Plan ahead and give your children the gift that lasts a lifetime
Even though you’re about to buy a home, now is a great time to give your kids a head start later in life. Purchasing a permanent life insurance policy for a little one is easy, and relatively inexpensive because of their age. It could add up to be one of the best investments you make for their financial future. Learn why life insurance is the gift that will last your baby a lifetime.
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