There's more to retirement planning than RRSPs -- Page 2
By Jim Middlemiss • Bankrate.com

Probate and creditor protection
Bell says another attractive feature of seg funds is the protection they can provide. When you die, a mutual fund becomes part of your estate assets, on which you must pay probate. Insurance assets, however, go directly to the beneficiary and avoid probate fees.

Sandra Sigurdson, manager of strategic investment planning with Investor's Group Inc., in Winnipeg, says seg funds can also be good investments for professionals and business owners because of the potential for creditor protection.

Provided that you haven't bought them to avoid bankruptcy or to defeat creditors, seg funds are not considered assets if you have creditor problems. That's because under bankruptcy laws, insurance proceeds can usually be kept out of creditors' hands.

Universal life strategies
Sigurdson says seg funds aren't the only type of insurance product that is attractive to investors. Once you maximize your RRSP, you can consider using a universal life policy for estate planning or even to generate tax-free income. "Universal life is a permanent insurance policy that covers you to the end of your days," she says. "You know that it is eventually going to pay out."

Universal life policies are more expensive than term policies because they have an investment and an insurance component. The cost varies from person to person and depends on the face value of the policy, but the younger you are, the cheaper the premiums.

A universal life policy allows for overfunding, so you can invest more than is required, which then grows tax-free, similar to being sheltered in an RRSP. Moreover, the funding limits of a universal life policy are usually higher than the limits of an RRSP, so investors can stash more money away to grow tax-free.

If you continually overfund the policy and the underlying investments perform well, it can grow to the point where the earnings cover the premium, and, as you get older, the policy becomes self-funded. When you pass away, your named beneficiaries will receive the proceeds without having to go through probate.

Another investment strategy, Sigurdson says, is to use the value built up in a universal life policy to secure a line of credit. Investors can then draw down on that credit for living expenses, creating a tax-free stream of income. When you die, the proceeds are simply used to pay off the line of credit and any interest owed.

So, while mutual funds and stocks are the investments most Canadians turn to, insurance products such as seg funds and life insurance shouldn't be overlooked when trying to build a nest egg for the future.

Jim Middlemiss is a freelance writer and lawyer based in Toronto. He's a frequent contributor to the National Post, Investment Executive and Wall Street & Technology.