Agatha and Peter run a successful sole proprietorship. They are 68 and 70 respectively. Peter has a huge registered investment portfolio that will…

The primary financial need is to cover the significant tax liability on Peter's registered investment portfolio upon its transfer to their son, Alexander. Under Canadian tax law, registered assets like RRSPs or RRIFs can be rolled over to a surviving spouse on a tax-deferred basis. Therefore, the major tax bill will not be due upon the first death (Peter's), but rather upon the death of the surviving spouse (Agatha). A joint last-to-die policy is specifically designed for this purpose, as it pays the death benefit only upon the death of the second insured person. This perfectly matches the timing of the tax liability, making it the most suitable and cost-effective solution for their estate preservation goal.

A. A joint first-to-die plan with Agatha and Peter as the insured This plan pays out on the first death. The proceeds are not needed at this time due to the spousal rollover of the registered assets.
B. Two separate permanent single life policies with Agatha and Peter as the insured This approach is typically more expensive than a joint last-to-die plan and provides a payout at the first death, which is unnecessary for this specific tax liability.
D. A joint first-to-die plan with Peter and Alexander as the insured This plan incorrectly identifies the insured parties and the timing of the need. The tax liability is on the parents' estate, not the son's.

1. IFSE Institute, Life Insurance (LLQP) Course, Module 4: Types of Life Insurance Policies, Section 4.3 "Joint Life Policies". This section explains that joint last-to-die (survivorship) policies are primarily used for estate planning to cover taxes due upon the death of the second spouse.

2. IFSE Institute, Life Insurance (LLQP) Course, Module 10: Taxation, Section 2.1 "Taxation of Registered Retirement Savings Plans (RRSPs) at Death". This chapter details the deemed disposition of RRSPs/RRIFs at death and the tax-deferred rollover available to a surviving spouse, which postpones the tax liability until the second death.

3. IFSE Institute, Life Insurance (LLQP) Course, Module 12: Needs Analysis, Section 3.2 "Estate Preservation". This part of the curriculum explicitly links joint last-to-die insurance as a key strategy to provide liquidity to an estate to pay for taxes on registered plans and capital gains that are realized upon the death of the last surviving spouse.