A Gift That Can Grow with Your Family: How cascading life insurance can help you support the next generation

When we meet to talk about your financial plan, the conversation often comes back to family.

You want to enjoy the life you’ve worked hard to build. You also want to know your children and grandchildren will be okay. And if you’re in a position to help them, you want that help to make a lasting difference.

That might mean contributing to an education fund, helping with a first home, or setting money aside for the future. Another option, one you may not have heard of, is cascading life insurance.

What is cascading life insurance?

• Generational wealth transfer: Cascading insurance is a way of using permanent life insurance to pass financial value from one generation to another.
• Parent or grandparent funded: A parent or grandparent purchases and owns a policy that insures the life of a child or grandchild. The owner pays the premiums, and the policy builds cash value over time.
• Tax-deferred transfer: Later, ownership may be transferred to the younger generation. Under Canadian tax rules (specifically Subsection 148(8) of the Income Tax Act), this transfer can occur on a rollover basis without triggering an immediate taxable policy gain. Note: this is tax-deferred, not tax-exempt—future withdrawals or policy surrenders may still trigger taxable policy gains.

What could this look like for your family?

1. Setup: Imagine you are a grandmother comfortable with your retirement finances who wants to do something meaningful for your granddaughter. You purchase a permanent life insurance policy on your granddaughter’s life and fund the premiums.
2. Transition: Down the road, once your granddaughter reaches adulthood, you transfer policy ownership directly to her.
3. Outcome: Your granddaughter now owns a policy with established coverage and accumulated cash value. She can maintain the coverage to protect her future family or explore utilizing policy values for other life milestones.

Key structural detail: Because your granddaughter is the person insured, your death does not trigger the insurance payout. The policy remains in force as long as premiums are maintained. Naming a contingent owner (successor owner) in the contract is essential to ensure ownership passes smoothly without probate complications if you pass away before initiating the transfer.

Why might this appeal to you?

• A head start on financial security: It establishes a lasting foundation before younger generations could comfortably afford to build one themselves.
• Protecting future insurability: Putting permanent coverage in place while someone is young and healthy locks in protection early. Once established, existing coverage generally does not require renewed medical underwriting even if health changes later (though adding more coverage in the future may still require proof of insurability).
• Tax-sheltered growth: Inside a qualifying tax-exempt policy, cash values accumulate without annual accrual taxation. When combined with a qualifying rollover transfer, it becomes an effective multi-generational wealth-planning vehicle.

Where to start

Before establishing a strategy like this, a few foundational priorities must come first:

• Your own security comes first: Can you comfortably afford to earmark this capital permanently without compromising your retirement income, emergency reserves, or long-term care needs?
• Policy mechanics and guarantees: Review the premium schedule, structural costs, guaranteed vs. non-guaranteed dividend scales, and policy durability.
• Loss of control post-transfer: Once ownership is formally assigned, the new owner assumes complete control—including the right to change beneficiaries, withdraw cash surrender values, or surrender the policy entirely.

For many families, direct cash gifts, First Home Savings Account (FHSA) support, or Registered Education Savings Plan (RESP) contributions may be more immediate and suitable. However, if you hold surplus capital intended for long-term legacy transfer, cascading insurance is a powerful strategy to evaluate.

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^{This information has been prepared by Laura Chanin who is an Investment Advisor for iA Private Wealth Inc. and does not necessarily reflect the opinion of iA Private Wealth. The information contained in this newsletter comes from sources we believe reliable, but we cannot guarantee its accuracy or reliability. The opinions expressed are based on an analysis and interpretation dating from the date of publication and are subject to change without notice. Furthermore, they do not constitute an offer or solicitation to buy or sell any of the securities mentioned. The information contained herein may not apply to all types of investors. The Investment Advisor and Portfolio Manager can open accounts only in the provinces in which they are registered.}

^{iA Private Wealth Inc. is a member of the Canadian Investor Protection Fund and the Canadian Investment Regulatory Organization. iA Private Wealth is a trademark and a business name under which iA Private Wealth Inc. operate}