For high-income Canadians, financial planning often comes down to one central question: How do I protect my legacy without tying up capital I could be using elsewhere? That’s where the Immediate Financing Arrangement (IFA) comes in—a strategy that’s gaining serious traction among business owners, professionals, and wealth-builders alike.
The traditional challenge with permanent life insurance is that it requires large, upfront premiums that lock away liquidity—capital that could otherwise be deployed into investments, real estate, or business growth. An IFA flips the script by offering the best of both worlds: long-term insurance protection and immediate access to capital.
This blog breaks down everything you need to know about IFAs in the Canadian context:
- What they are
- How they work
- Who they’re best suited for
- The benefits and potential drawbacks you need to consider
Whether you’re protecting your estate, seeking tax-efficient investment leverage, or optimizing corporate cash flow, understanding the IFA could unlock a smarter way to fund your financial future.
1. What Is an Immediate Financing Arrangement (IFA)?
An Immediate Financing Arrangement (IFA) is a leveraged life insurance strategy that allows individuals or corporations to purchase permanent life insurance—typically whole life or universal life—while simultaneously borrowing against the value of that policy to access liquid capital.
Rather than waiting years for the policy’s cash value to build up before it can be used, an IFA enables you to secure a loan—often up to 100% of the premium paid—immediately after the policy is in force. The policy serves as collateral for the loan, which can then be used to fund investments, business operations, or other financial objectives.
This strategy is especially popular among:
- High-net-worth individuals looking to integrate estate planning with liquidity access
- Incorporated professionals who want to retain working capital while securing long-term insurance
- Business owners seeking to protect key persons or fund succession plans without draining corporate reserves
At its core, an IFA is not just about insurance—it’s about leverage, capital efficiency, and tax-aware planning. Used correctly, it becomes a powerful way to preserve liquidity, grow wealth, and protect your estate—all at the same time.
2. How Does an IFA Work?
At a glance, an Immediate Financing Arrangement (IFA) may sound complex—but once broken down, the strategy follows a clear and structured sequence. Here’s how it works:
Step 1: Purchase a Permanent Life Insurance Policy
The process begins with acquiring a whole life or universal life insurance policy, designed to build cash surrender value (CSV) over time. These policies provide lifelong coverage and accumulate value internally, making them ideal for this strategy.
Step 2: Assign the Policy as Collateral
Once the policy is active, it’s assigned to a lender as collateral—usually a bank experienced with insurance lending arrangements.
Step 3: Secure a Loan
The lender provides a loan based on the value of the policy. In many cases, this can be up to 100% of the premiums paid or the current CSV. The loan can be structured as a revolving line of credit or term loan, depending on the arrangement.
Step 4: Access and Reinvest the Funds
With the loan proceeds in hand, you can reinvest into income-generating assets, expand a business, purchase real estate, or pursue any number of financial opportunities—without having to liquidate other holdings.
Step 5: Manage Premiums and Interest Payments
You’ll continue to pay annual insurance premiums to keep the policy in force, and service the loan interest, typically using either corporate funds or investment income from the borrowed capital.
Step 6: Repay the Loan at Death or Earlier
Upon the policyholder’s death, the insurance death benefit pays out. A portion is used to repay the outstanding loan, and the remaining balance is distributed to your beneficiaries—often through the Capital Dividend Account (CDA) for tax-free transfer.
🔍 Key Insight: The success of an IFA depends on the ongoing growth of the policy’s CSV and the discipline to manage premiums and interest payments. If these elements are well managed, the strategy can function like a finely tuned wealth engine.
"Do not save what is left after spending, but spend what is left after saving." — Warren Buffett
3. Key Benefits of an IFA
For those with the right financial profile, an IFA unlocks a rare trifecta: liquidity, leverage, and legacy. Here’s why it’s such an attractive strategy for high-net-worth individuals and business owners:
1. Liquidity Without Sacrificing Coverage
Rather than tying up capital in a large insurance premium, an IFA allows you to access that capital immediately—enabling you to keep building your business or investment portfolio while still securing permanent life insurance.
2. Potential Tax Advantages
If the loan proceeds are used to earn taxable investment income, the interest payments may be tax-deductible. Additionally, a portion of the insurance premiums may be eligible for deduction, depending on the use and structure of the policy.
3. Efficient Estate Planning
The life insurance death benefit, less any outstanding loan, can be paid tax-free to beneficiaries through the Capital Dividend Account (CDA)—providing a clean and tax-efficient wealth transfer mechanism.
4. Preservation of Capital
Why drain liquid cash when you can keep it invested? An IFA keeps your money working across multiple vehicles: in the policy, in your investments, and back in your business.
5. Flexible Use of Borrowed Funds
There are no restrictions on how the loan proceeds are used. Business expansion, real estate development, income-producing investments, or even diversifying into private equity—it’s your move.
4. Who Should Consider an IFA?
An Immediate Financing Arrangement is a powerful strategy—but only when paired with the right financial profile and long-term goals.
A Good Candidate for an IFA Typically Has:
- Strong, predictable income to support premium and loan interest payments
- Significant net worth or corporate assets that justify permanent insurance
- A focus on tax-efficient estate planning or succession planning
- A long-term outlook, with a willingness to maintain the strategy for decades
You May Want to Reconsider If You Have:
- Limited liquidity or high debt obligations
- Unstable or unpredictable cash flow
- Poor insurability due to age or health issues
- A short planning horizon, or anticipate needing a quick exit
Bottom line: An IFA works best when it’s backed by financial stability, a long view, and strategic intent. It’s not a fit for every household—but when the profile aligns, it can be a game-changer.
5. How to Set Up an IFA in Canada
Setting up an IFA requires thoughtful coordination between your insurance advisor, financial planner, lender, and tax specialist. Here’s how to get started:
Step 1: Define Your Financial Goals
Clarify your priorities—whether it’s growing wealth, protecting an estate, or expanding your business—and confirm that the IFA aligns with your cash flow, risk tolerance, and timeline.
Step 2: Secure a Permanent Insurance Policy
Work with a licensed advisor to purchase a whole life or universal life policy that builds significant cash surrender value (CSV). This becomes the foundation of your IFA.
Step 3: Partner with a Lender
Approach a bank or lender that specializes in CSV lending. Many Canadian institutions offer tailored IFA products, often lending up to 100% of the annual premium or accumulated CSV.
Step 4: Use the Funds Strategically
Loan proceeds should ideally be used in a tax-efficient, income-generating manner—such as investing in a portfolio, business expansion, or real estate. This helps offset the cost of borrowing and may make loan interest deductible.
Step 5: Monitor and Adjust Regularly
Track the growth of your policy, manage loan interest payments, and stay aligned with your long-term plan. Reassess your strategy if interest rates rise or your goals evolve.
6. Conclusion: Leverage with Purpose
An Immediate Financing Arrangement isn’t just a financial tactic—it’s a strategic fusion of protection, liquidity, and long-term growth. When structured correctly, it allows you to keep your capital working, preserve your estate, and maintain control over how you allocate wealth.
But this is not a DIY strategy. IFAs require expert guidance, thoughtful design, and regular management. For the right client, though, the benefits can be extraordinary—unlocking financial flexibility without sacrificing future security.
Whether you’re looking to grow, protect, or pass on your wealth, an IFA could be the key to doing it all—intelligently, efficiently, and on your own terms.
Our team of Stone Owl advisors is here to help you implement these strategies for the best outcomes. Schedule a Discovery Call with us below to ensure your financial plans are on track.
