Glossary of Terms

This vocabulary appears throughout the book. Where a term has a specific Canadian meaning that differs from its American usage, the difference is noted.

Adjusted cost basis (ACB)

A tax figure representing the policyowner's cost in the policy for income tax purposes. It is not the same as total premiums paid, and it declines over time. It determines whether proceeds from a policy loan or a surrender are taxable under section 148 of the Income Tax Act.

Capital Dividend Account (CDA)

A notional account of a private Canadian corporation, under subsection 89(1) of the Income Tax Act. Life insurance proceeds received by a corporation, less the policy's adjusted cost basis, are generally credited to it, allowing that amount to be paid to shareholders as a tax-free capital dividend.

Cash value

The value accumulated within a permanent insurance contract. In a participating policy it comprises guaranteed values set out in the contract plus any value from paid-up additions purchased with dividends. Available cash value is what may be borrowed against or surrendered.

Death benefit

The amount payable to the beneficiary on the death of the life insured. It is the primary purpose of the contract. An outstanding policy loan reduces it until repaid.

Deemed disposition

Canada has no estate tax. Instead, on death a taxpayer is generally deemed to have disposed of capital property at fair market value, and accrued gains become taxable. This is a central Canadian difference from American planning material.

Dividend

A discretionary annual distribution from an insurer's participating account, declared by the board of directors. Not guaranteed, not interest, and not a dividend in the corporate-share sense. Scales can fall.

Exempt test

A test under the Income Tax Act regulations determining whether a life insurance policy qualifies for tax-advantaged accumulation. A policy funded too heavily relative to its death benefit ceases to be exempt. It constrains how quickly a policy may be funded and has no identical American equivalent.

Paid-up addition (PUA)

A parcel of fully paid whole life insurance purchased with a dividend, requiring no further premium. Each carries its own death benefit and cash value and is itself eligible for future dividends. The balance between paid-up additions and base coverage is the central design decision in a policy built for this strategy.

Participating account

The pool within an insurer in which participating policies share. Its investment results, mortality experience and expenses determine what dividend, if any, the board declares.

Participating whole life insurance

Permanent life insurance that participates in the results of the insurer's participating account and may receive dividends. It is an insurance product, not an investment.

Policy loan

Capital advanced by the insurer to the policyowner, secured by the policy's value, charging interest. It is a liability until repaid, reduces the death benefit while outstanding, and is a disposition under section 148.

Assuris

The not-for-profit organisation that protects Canadian policyholders if a member life insurance company fails. Protection is subject to limits. Assuris is not CDIC, which covers deposits at banks and is not applicable to insurance contracts.

Financial Security Advisor

The title for a licensed representative in Quebec — conseiller en sécurité financière — certified by the Autorité des marchés financiers. Elsewhere in Canada the equivalent is a licensed life insurance agent, regulated provincially.

Authorized IBC Practitioner™

A designation issued by the Nelson Nash Institute for specialised study of the strategy known as The Infinite Banking Concept®. It is not a government licence and not a securities registration; the provincial insurance licence authorises practice.