Real Estate Talk:
Life insurance & property investment
Permanent life insurance with enough accumulated cash value can be used to purchase property
By Joseph Marovitch
May 7. 2026
Permanent life insurance with sufficient accumulated cash value can be used to purchase property; however, there are pros and cons. There are two ways to use your policy to purchase a property:
- Borrowing against the cash value of the policy – In a permanent life insurance policy, cash-back grows as time passes. If the policy owner took out a policy 30 years ago, over time, cash back accumulates. If the policy owner purchased a $1,000,000 life insurance policy 30 years ago, the cash-back value may be $30,000.00. In Canada, the policy owner can take anywhere from 90% to 100% of the cash-back value. This money can be taken out of the policy and used for a down payment, renovations, closing costs or other expenses. It is only worth doing if the property is purchased at or below market price. The policy owner is trading the funds to be used when the policy owner passes away to cover the spouse’s expenses or be passed on to the children. If cash-back funds are used rather than invested, the money is lost. However, if a property is purchased at a discount in a good market and its value grows over time, the investment is worthwhile.
. - Using the policy as collateral – This means the policy owner assigns the policy to the lender as the beneficiary. Therefore, when the policy owner passes away, the lender receives what they are owed from the insurance funds. This strategy can allow the policy owner to obtain a better interest rate because the lender’s loan is secured and the policy is guaranteed to be repaid. However, this strategy also reduces the death benefit for the other beneficiaries unless the property has grown significantly in value. Another benefit of using funds from a life insurance policy is that the income from the insurance is not taxable. The loan does not require a credit check and will not affect the policyholder’s credit score.
Borrowing against the cash value or using the policy as collateral is only beneficial when the funds are used for investment purposes.
Borrowing against the cash value or using the policy as collateral is only beneficial when the funds are used for investment purposes. Whether purchasing a home or investing in a business or the stock market (be aware that each of these investments carries varying levels of risk), the funds are often considered tax-free because they are acquired from a life insurance policy. This is generally why many use funds from their insurance policy to invest. By using tax-free insurance funds and purchasing through a corporation, rather than personally, the policy owner can save on taxes and protect themselves against creditors.
There are several factors to consider before using these strategies, such as determining the risk-reward ratio, how the owner’s year-end statement will be affected at income tax time, and several other issues. This is why policy owners must consult their tax specialist, accountant, or financial advisor to be fully informed before using these strategies. However, if used properly, these strategies can be highly beneficial for increasing one’s income and wealth and passing on savings to the next generation.
The information in these articles is a summary. Should you have any questions or comments, or wish to discuss further, please use the comments section at the bottom of the page or contact me directly. As well, to view past articles, click here.
STATE OF THE MARKET
Montreal remains resilient compared to other cities across Canada. Prices have risen, partially due to the Bank of Canada holding rates steady. However, with rising inflation and higher carrying costs, many buyers are not rushing to purchase homes. Neither are sellers ready to sell, as evidenced by a 7% decrease in sales in April.
‘For buyers and investors inclined to buy and sell, there are certainly opportunities to purchase homes at negotiable prices and income properties at higher capitalization rates.’
We are still in the grip of an oil shortage, which is driving up the cost of goods and services. The current ceasefire between Iran and the U.S. is like a dam with holes and politicians with not enough fingers to stop the leaks. There is movement in the market, but much uncertainty.
For buyers and investors inclined to buy and sell, there are certainly opportunities to purchase homes at negotiable prices and income properties at higher capitalization rates.
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