A Guide to IFA Insurers and Lenders

(Part of the IFA Master Curriculum)

An Immediate Financing Arrangement (IFA) is not a product you buy off a shelf; it’s a sophisticated financial structure built upon two distinct but deeply interconnected pillars: a life insurance policy and a third-party loan. For accountants advising clients, understanding the insurers and lenders involved is crucial, as the success, risk profile, and overall efficiency of the strategy are determined by the specific institutions chosen to provide these core components. As clients become more sophisticated, they will look to you to vet the institutions involved, making this knowledge essential for providing high-value advice.

The architecture of any IFA rests on the relationship between a life insurance carrier that provides the foundational asset and a specialized lender that understands the unique nature of insurance-based lending.

This article explores the key institutions in both the insurance and lending markets in Canada, highlighting how their different philosophies and product designs create fundamentally different outcomes for those using an IFA.

The Insurance Pillar: The Engine of the IFA

The foundation of any IFA is the permanent life insurance policy that serves as its collateral. The strategy is important enough that it has wide support across the Canadian insurance industry. Most major carriers offer participating whole life policies with features specifically designed to work within an IFA structure, ensuring a competitive market for consumers.

The vehicle of choice is overwhelmingly participating (par) whole life insurance, which serves as the powerful and stable engine for a successful IFA. This type of policy is ideal for leveraging because it offers contractual guarantees on the death benefit, premiums, and minimum cash surrender value (CSV) growth. This predictability is essential for lenders. Beyond the guarantees, the policyowner may receive non-guaranteed dividends, which provides a powerful, tax-advantaged growth engine within the policy.

When selecting an insurer, several factors are critical:

• Policy Architecture: Insurers have engineered specific product lines to cater to different client objectives. For an IFA, where the quality of collateral is paramount, policies designed for high early cash value are heavily favoured by lenders. A higher early CSV reduces the lender’s risk and allows the client to borrow more without posting additional collateral. Choosing a traditional or inforce policy designed for long-term estate value for an IFA will likely result in a suboptimal financing arrangement.
• Dividend Performance: The non-guaranteed dividend is a crucial component of a policy’s long-term performance. While not guaranteed, an insurer’s historical track record and current dividend scale provide critical insights. Long-term consistency is often as important as the current rate, as an IFA is a multi-decade commitment. Some insurers are newer to the market and lack the long-term dividend track record of more established players.
• Corporate Structure: While some advisors and clients focus on whether an insurer is public or a mutual company (owned by its participating policyowners), we tend to focus on other factors like policy design and dividend history, which are more direct drivers of performance.

The Lending Pillar: The Source of Capital

While any financial institution could theoretically provide a loan secured by a life insurance policy, the IFA is the domain of a select group of specialized lenders. A client’s existing bank may offer CSV-based lending, typically through its private banking or commercial divisions rather than at the branch level. This can be a convenient option. The good news is that there is competition, which leads to better loan rates and terms.

However, we recommend starting the search with specialty lenders. These institutions have developed dedicated programs and deep expertise in the unique underwriting and administrative requirements of insurance-based lending, often resulting in a more streamlined, efficient, and pleasant experience. For a detailed framework on how to choose between these options, please see our guide on how to select an IFA lender.

Each lender has a distinct approach, but their programs generally differ on these key terms:

• Lending Model and Collateral: This is a primary point of differentiation. Some lenders have championed a 100% of Premium Model, which provides the maximum immediate capital by lending back the full amount of the premium paid, which may require additional collateral in the early years. The more traditional CSV-Based Model involves advancing a loan equal to a high percentage (90-100%) of the policy’s existing CSV.
• Underwriting and Annual Reviews: The nature of the annual review process is a critical, yet often overlooked, point of comparison. The process can range from a streamlined administrative check-in to a full annual financial re-underwriting. Some lenders offer a multi-year funding commitment upfront, which provides significant long-term certainty by reducing annual friction. To better understand the specifics, you can review our guide on the anatomy of an IFA loan.

Key Questions to Define the Client’s Objective

Before evaluating institutions, it is essential to diagnose the client’s primary goals and risk tolerance. These questions can guide your discovery process:

• Primary Goal: Is the main objective to unlock immediate capital for business growth, or is it to create a stable, long-term estate enhancement at the lowest possible after-tax cost?
• Collateral Comfort: How comfortable is the client with the idea of pledging other corporate or personal assets as collateral for the first few years of the arrangement?
• Process vs. Outcome: What is more important: maximizing the immediate capital available for redeployment, or minimizing annual paperwork and the need for financial re-qualification with the lender?

Common Pitfalls in the Selection Process

Accountants are trained to identify and mitigate risk. When advising a client on an IFA, be aware of these common pitfalls:

• Focusing Solely on Interest Rates: Choosing a lender based only on the lowest advertised rate without scrutinizing the terms of their annual review process or collateral requirements can introduce significant long-term risk.
• Ignoring Policy Design: Selecting an insurance policy with the highest long-term death benefit projections without ensuring it generates sufficient early cash value can starve the IFA of the very collateral it needs to function.
• Using a Non-Specialist Lender: Working with a generalist lender who lacks a dedicated IFA program can lead to administrative friction, misunderstandings of the strategy’s mechanics, and potential roadblocks in the future.

Pre-Approval: Aligning Health and Finances

Before formally applying for an insurance policy, it’s crucial to confirm that a client will likely qualify for both the insurance and the loan. Insurers assess health risks differently; a condition that is rated or declined by one company may be viewed more favourably by another. For clients with particular health issues, we can discreetly approach multiple insurers to find a suitable fit while protecting their privacy.

Lenders often have guides and summaries of what they are looking for when entering into an IFA with a client, and usually have experts that can meet with clients to verify that their financial health meets the lender’s requirements.

This preliminary due diligence ensures that the entire IFA structure is viable from the outset, preventing wasted time, effort, and potential client disappointment.

The Art of the Match: Why the Right Pairing is Everything

The most successful Immediate Financing Arrangements are those where the insurance policy and the loan facility are strategically paired to align perfectly with a client’s specific objectives.

Consider a client focused on rapid business expansion. Their profile aligns with maximizing immediate capital. The optimal pairing would be an insurance policy designed for high early cash value combined with a lender offering a 100% of premium loan model. The policy’s design directly supports and de-risks the lender’s model, creating a seamless and highly efficient structure.

Conversely, a client focused on equalizing an estate between beneficiaries would align with maximizing certainty. They might prioritize predictability and minimal risk. They would benefit from pairing a policy from an insurer with a long history of stable dividends with a lender that provides a multi-year funding commitment. This reduces the risk of annual re-qualification and provides valuable peace of mind.

The choice of insurer and lender in an IFA matters profoundly. The insurer dictates the growth engine and collateral quality of the strategy, while the lender governs the cost of capital, structural flexibility, and overall risk profile. A diligent, expert-led selection process, where we act as the Architect on the IFA Core Advisory Team, is the essential key to transforming this sophisticated strategy into a cornerstone of a long-term wealth plan.

From Theory to Practice

With an understanding of the key institutions involved, the next step is a detailed evaluation. Which insurer’s policy design best suits your client’s timeline? Which lender’s terms offer the right balance of flexibility and certainty?

We specialize in this due diligence. We provide the comparative analysis and scenario modeling you need to confidently recommend the right insurer and lender for your client’s IFA.

Book a call at your convenience to begin the conversation.

Promod Sharma (FSA, FCIA) and Jeevan Sharma (CFP) YOUR FAMILY TEAM

At Taxevity Insurance, we’re passionate about bringing clarity to complex financial decisions. Let us empower you with personalized strategies to achieve your goals. We focus on life and health insurance solutions to protect your business, your family, and your legacy.