How does an IFA work in Canada?

Getting an immediate financing arrangement in Canada can become easy when you follow these steps:

Canadian lenders offering an immediate financing arrangement

Here is a list of popular Canadian lenders offering an Immediate Financing Arrangement in Canada:

• Equitable Bank
• Manulife Bank
• DUCA Credit Union

Equitable Bank IFA

Equitable Bank has a history dating back to 1970, when it was founded as the Equitable Trust Company. In 2013, it became a Schedule I Bank and now ranks as the 7th largest bank in Canada in terms of assets. Over the years, Equitable Bank has expanded its offerings with immediate financing arrangements or IFA to help you access up to 100% of the premium paid towards a permanent life insurance policy.

Here are some of the benefits of choosing Equitable Bank IFA:

• There is no additional collateral required except for the insurance policy
• Competitive interest rates so that you get better returns
• Use of technology for the complete documentation process and easy access to the loan
• An IFA is available to a wide range of borrowers, whether or not they are high net worth; the only requirement is an annual policy premium of $100,000
• You can choose from program 1 and program 2, depending on your net worth and FICO score

Eligibility:

You will be eligible to get an IFA from Equitable if you:

• Are a resident of Canada
• Have a whole life insurance policy or are in the process of obtaining a whole life policy with an annual premium of $100,000
• Meet the financial requirements to ensure that the loan can be paid back

Overview of Equitable Bank IFA

Manulife Bank IFA

Manulife Bank dates back to 1993 and is one of the Canadian banks founded by an insurance company. It operates as a wholly-owned subsidiary of Manulife Financial, one of Canada’s largest and most respected financial institutions. With an asset size of more than $29 billion, Manulife Bank has grown significantly over the past three decades. It has offered IFA programs since 1995.

Here are some of the reasons why you should choose Manulife Bank IFA:

• There is no maximum IFA size when you choose Manulife
• You can borrow up to 100% of the cash value of a whole life insurance policy or 90% against a Universal Life (UL) policy invested in Guaranteed Investment Accounts (GIAs)
• There is flexibility to choose from two structures: 100% CSV lending, or 100% replacement of premium, which requires paying the full premium and providing additional collateral
• There is no penalty for repaying the loan amount
• Experienced salespeople, loan adjudicators, and risk management people who know about IFA help you structure your IFA

Eligibility:

You will be eligible to get an IFA from Manulife if:

• You have a minimum IFA size of $300,000 over ten years, or $30,000 per year

Overview of Manulife Bank IFA

DUCA Credit Union IFA

DUCA Credit Union (DUCA Financial Services Credit Union Limited) was founded in 1954. Over the years, it has evolved into one of the largest member-owned financial institutions in Ontario. It has an asset size of $6 billion and offers a range of financial services, including immediate financing arrangements. DUCA’s Immediate Financing Arrangement is a strategy that combines permanent life insurance with a loan, giving clients both insurance protection and access to capital for other investments.

Here are some of the benefits of choosing DUCA IFA:

• DUCA makes the approval of a loan easier as it works with the major Canadian life insurance carriers
• A 100% lending ratio is available for whole life policies
• There are 3 primary structures to choose from: borrow the equivalent of 100% of the CSV each year, or the equivalent of 100% of the CSV and the entire premium each year, or 100% of the CSV plus the entire premium and a portion of net interest payments
• A competitive interest rate applies

Eligibility:

You will be eligible to get an IFA from DUCA when:

• The minimum loan amount is $50,000 and the maximum is $10,000,000
• It is used for a personal or corporate line of credit (LOC)

Overview of DUCA IFA

Equitable Bank vs. Manulife Bank vs. DUCA Credit Union: Which IFA lender fits your needs?

Here is a table that illustrates the key differences between Equitable, Manulife, and DUCA, the popular lenders in Canada.

Equitable vs Manulife vs DUCA

Is IFA really helpful in Canada?

An immediate financing arrangement is helpful for high‑income Canadians and business owners who need permanent life insurance but also want to keep their capital available for investments. It becomes helpful by providing liquidity to fund your immediate business and investment needs.

However, it is also a strategy that involves risks like rising interest rates, fluctuating dividends affecting CSV and policy performance, making it work best when carefully designed and monitored with a qualified advisor. Consult our licensed insurance experts who can help you decide if IFA is the right choice for you. We will help you choose the right strategy no matter what. Schedule a consultation with our advisors now!

What is IFA in Canada?

An Immediate Financing Arrangement (IFA) uses the cash surrender value of a permanent life insurance policy as collateral for a line of credit. You maintain coverage while potentially accessing capital for business or investment purposes, subject to credit approval and lender advance rates.

Which lenders offer IFA in Canada?

Many Canadian financial institutions offer IFAs. Examples include: Equitable Bank, Manulife Bank, and DUCA Credit Union.

Is it worth paying an IFA?

An IFA strategy is worthy if you are a high-income earner or business owner who has strong, stable cash flow and can invest the borrowed funds at attractive returns. If your income is uncertain, your risk appetite is lower, or you cannot comfortably handle rising interest costs, the IFA strategy may not be beneficial for you.

How to apply for IFA?

To apply for an IFA in Canada, first, secure a permanent life insurance policy. Assign the policy to the lender as collateral, then, depending on the program, borrow up to 100% of the policy’s CSV or up to the full premium amount. Use the funds for qualified business or investment purposes as appropriate.

Is IFA interest tax-deductible?

Interest may be deductible when borrowed funds are used to earn income from a business or property, and other conditions are met. Tax outcomes depend on your facts. Get tax advice from a financial advisor before implementing an IFA strategy.

Steps to set up an immediate financing arrangement in Canada

To start an immediate financing arrangement, follow these steps:

Step 1: Assess your financial needs

Before you proceed with an IFA, outline your goals and build a financial plan with a licensed insurance advisor.

An experienced licensed insurance advisor can work alongside your accountant and provide invaluable guidance in navigating the financial implications of an IFA effectively. To begin, assess key factors such as: the amount of life insurance you need; premium amounts; premium and interest payment frequency; the financing amount required; and potential lenders.

Step 2: Apply for a permanent insurance policy

For an IFA, you will need a whole life insurance policy (or a universal life insurance policy) with a suitable death benefit and cash value. We can help you find the whole life policy that works best for the immediate financing strategy you want to set up. For IFA, you would typically need a policy that can grow cash value in the early years. Our advisors will run various structures for you to set up a policy structure that meets your cash value and projected death benefit needs.

Step 3: Contact your bank, lender, or financial institution

Once you have bought the insurance policy, you should choose a Canadian bank, lender, or financial institution you want to borrow from. Based on your request, the lender may ask for a minimum loan amount, an insurance policy from only an approved life insurance company, and proof of strong cash flow. Apply for up to 100% of the cost of life insurance premiums you paid in Step 2, or up to 100% of the projected cash surrender value in your insurance illustration.

Step 4: Assign collateral

When you apply for the line of credit, tell your lender that you want to use your whole life insurance policy as collateral. You and your lender execute a collateral assignment of the life insurance policy. This means that you agree that your life insurance policy will be used by the lender if you are unable to pay back the loan proceeds. You do not change the beneficiary; the beneficiary named in Step 2 remains the same.

Step 5: Get financing

The next step is to wait for the lender to process your application. The lender will let you know when they approve your application. This can be immediate or take a few days, depending on the lender. The lender can ask for additional collateral if they need extra security, depending on how much you are borrowing. They will contact you to ask what other assets you can use as collateral, such as real estate or investments. You and your lender agree on terms such as the interest rate, interest payment frequency and amount, repayment terms, and the draw schedule. After your application is completed and the terms have been mutually agreed to, you can get instant access to the financing.

Step 6: Reinvest

Use the loan for investment or business growth according to your plan. Borrowed funds are generally not taxable; however, investment returns may be taxable. Interest may be tax-deductible in Canada if the borrowed money is used to earn business or property income, and other conditions are met.

Step 7: Uphold loan terms

Now that the agreement has been made and you have the loan proceeds, you have to live up to your part of the arrangement. This varies depending on the agreement you have with your bank or lender. You must pay the interest monthly, make loan drawdowns according to the schedule you agreed to, and pay off the loan according to the schedule you agreed to.

Remember that the lender holds your life insurance policy and possibly other assets as collateral. If you breach the terms, the lender may realize on the collateral, including recovering from the policy’s cash value or reducing the overall death benefit.

Step 8: Annual review

If you have a line of credit that has to be revisited every year, your lender might want to check on the policy performance, loan repayment status, additional collateral security requirements, as well as your financial health. They may also revisit annual renewal fees to determine if they will stay the same or not.

Do I need to do anything else to set up an IFA?

Yes, while the 8 steps covered above are standard, you may have additional steps to take. But these steps are optional and can vary, depending on the agreement you have with your lender. It may be different for everyone, so not everyone who gets an IFA may have to take the steps below.

In many cases, an IFA strategy is established with the understanding that it will be paid off after the borrower dies. However, this is not always the case.

• Repaying the loan during your lifetime: If you choose to pay the loan off early, you can make regular loan payments the same way as you would with any loan or financing arrangement. You would pay regular interest payments, plus pay back the amount you borrowed as annual deposits or as a lump sum at any point in time. If you go with this option, your beneficiaries get the full policy proceeds from your life insurance after you pass away.
• Repaying the loan after your death: If you don’t want to worry about paying back the IFA right away, you can also let it be paid back as a deduction from your death benefit. You still have to make interest payments during your lifetime. Once you pass away, any outstanding loan balance would be deducted from your insurance policy’s tax-free death benefit. Keep in mind that this will mean less money for your beneficiaries, though.

Things to keep in mind when you set up IFA in Canada

When setting up IFA in Canada, listed below are a few things that you need to keep in mind:

• Choose the right permanent life insurance policy that will be helpful in meeting your borrowing needs
• Check the loan limits and other terms and conditions, as they will vary from lender to lender
• Be prepared with the necessary documents, including policy document, income proof, lender-required forms, etc
• Keep the policy performance in check, as the dividend scale fluctuations can affect the borrowing power and loan sustainability
• Understand the loan repayment options with your lender
• Keep an alternate plan ready for potential rising rates, lender terms, or any unforeseen financial difficulties

How long does an IFA take to process?

The processing time for an IFA application depends on the lender. Usually IFA applications are approved within 1 to 3 weeks.

Once you’re approved, financing comes through right away. There’s no waiting period — that’s why it’s called immediate financing, after all.

Contact a professional

If you’re interested in starting an IFA, you should speak to an expert to make sure you have your ducks lined up in a row. An IFA strategy can have many benefits for business owners and other high-income earners in Canada. But you don’t have to decide alone.

Schedule some time with one of our insurance professionals and we’ll be happy to help you figure out if an IFA could be right for you.

FAQs about how to set up an immediate financing arrangement

Do I pay bank fees for an IFA?

Yes, banks and lenders typically charge a flat fee for an immediate financing arrangement. This is separate from interest payments. The flat fee is typically about $500 to set up the IFA. Always confirm set-up fees, legal costs, renewal fees, and interest rate terms before you proceed.

Depending on the loan amount, the initial fee may be waived by the lender. Ask what the charges will be before you decide who to go with.

What kinds of insurance policies can be used to set up an IFA?

Your insurance options for an IFA are:

• A participating permanent life insurance policy
• Cash value universal life insurance, but that comes with more risks and complications

What is an immediate financing arrangement?

An Immediate Financing Arrangement (IFA) pairs a permanent life insurance policy with a bank loan secured by the policy. You fund the premium, assign the policy as collateral, and borrow against its value to redeploy capital, commonly used by high-income individuals and business owners seeking liquidity, potential interest deductibility, and long-term estate value.

Speak with a professional

If you’re thinking about starting an immediate financing arrangement, speak with one of our licensed insurance advisors.

As Canada’s best online insurance broker, we work with more than 30 of Canada’s best life insurance companies. We can help give you tailored guidance about what kind of permanent life insurance policy to use for an IFA or whether that may be the right strategy for your needs.

Frequently asked questions

What is an immediate financing arrangement?

An immediate financing arrangement is a unique insurance strategy where you use a whole life insurance policy as collateral to open a line of credit with a financial institution, such as a bank or lender. You can instantly access up to 100% of the premiums you paid for the insurance policy, or up to 100% of the cash value

What are the risks of an immediate financing arrangement?

An immediate financing arrangement carries risks like rising interest rates, cash value performance falling short of expectations, dividend scale fluctuations, change in lender terms, possible tax liabilities, and a few more.

What’s the maximum amount I can borrow through an IFA?

Immediate financing arrangements let you borrow up to 100%; however, the specific amount will depend on your individual policy details.

What is an immediate financing arrangement (IFA)?

An Immediate Financing Arrangement or IFA is an advanced financial strategy that allows you to secure permanent life insurance coverage, while retaining access to cash to invest in your income-producing assets or businesses.

In other words, an IFA is an estate planning tool that allows an individual to plan for future tax bills or other lifelong insurance coverage needs without setting aside hefty upfront premium payments for life insurance. An IFA frees up the cash flow that would otherwise be locked in life insurance premium payments, so the liquidity can be used to grow their investment portfolio or businesses instead.

To set up an IFA, an individual can use whole life insurance or universal life insurance as collateral to access a line of credit through a bank or lender immediately.

An IFA is designed such that the amount you borrow upon setting up of the life insurance policy can be repaid during your life or from the proceeds of your life insurance policy after you pass away. 

Normally, you only have to pay interest on the borrowed amount. Most business owners and investors will have access to investment opportunities that can cover the cost of the interest. Further, you may also be able to offset the interest expense against your income and lower your taxes paid.

How does an immediate financing arrangement work in Canada?

In Canada, an immediate financing arrangement works almost the same way that opening a line of credit with a bank does, except your life insurance policy is used as collateral. You:

1. Buy a whole life insurance policy that creates significant cash surrender value (CSV) in the initial years
2. Secure a line of credit with a bank, lender, or specialized financial institution, using your life insurance policy as collateral
3. Get immediate financing for up to 100% of the cash value of your policy or even up to 100% of your paid premiums
4. Make regular monthly interest payments
5. Pay annual recurring insurance premiums
6. Steps 3 to 5 are repeated annually
7. You can either pay back the loan while you’re alive or have the remaining balance taken out from the death benefit of your insurance policy after you pass away. The remaining proceeds of the whole life insurance policy are paid out to your beneficiaries upon your passing away. 

Your policy will continue to build cash value growth for the entire time it is active.

What are the benefits of an IFA strategy?

Understanding the benefits of an IFA is crucial to assessing whether this approach aligns with your business, estate planning, or investment goals. So, listed below are some of the benefits of the IFA strategy:

• Immediate liquidity: One of the key benefits is immediate access to cash. Instead of locking money inside a policy, the IFA gives you liquidity almost immediately

• Flexibility: Whether you want to expand a business, invest in real estate, or simply improve cash flow, IFA adapts to your financial needs
• Peace of mind: Even while you borrow against it, your life insurance remains fully intact. You still get lifelong coverage, stable cash value growth, and a tax-free death benefit
• No savings lost: The cash surrender value continues to grow, potentially increasing the death benefit as well 
• Time-saving: Full underwriting may not be required, which can make the process faster than other types of loans
• Interest-saving: The interest rates may be lower than those of getting a bank loan
• Lenient: An IFA loan does not need to be repaid during your lifetime. If desired, the outstanding loan balance can simply be deducted from the policy’s tax-free death benefit.
• Tax-saving: Potential tax deductions as per CRA rules, depending on how proceeds are used
• Self-paying: If employed correctly, an IFA can cover the cost of your life insurance coverage and be reinvested into projects that generate enough returns to cover interest, too

What are the disadvantages of an IFA?

While an IFA can be quite convenient, it also comes with some disadvantages, from fluctuations in interest rates to a complex structure, and a few more that have been listed in the section below: 

• Only permanent life insurance qualifies: To get IFA, a permanent life insurance policy, including whole and universal policies, will be applicable; term policies do not qualify for this
• Capital-intensive: IFA requires sufficient disposable income or savings to pay premiums upfront
• Ongoing interest: An IFA is a line of credit, so interest continues for the period the loan is outstanding 
• Risky: Interest can potentially outpace the rate of return on your investments, leaving you out of pocket
• Reduced death benefit: The amount borrowed might reduce the death benefit left for your surviving spouse, family members, or other beneficiaries
• Strict requirements: Some providers may ask for additional collateral, have age or income minimums, and may only accept policies from specific insurance companies
• Complex: An IFA is an advanced insurance strategy that can be difficult to grasp and effectively use

Our licensed life insurance advisors at PolicyAdvisor can help you decide if an IFA is right for you and guide you through the process of setting it up.

Immediate financing arrangement vs policy loan

Here is a table highlighting the difference between the IFA and policy loan:

IFA vs policy loan

What can insurance immediate financing arrangements be used for?

The good part of IFA is that you can use the loan proceeds for pretty much anything you need. Most people use it for:

• Estate planning or estate equalization
• Offsetting insurance premium costs
• Reinvestment opportunities (real estate purchases, etc.)
• Business expansion, new ventures, etc.
• Business succession planning

In general, an IFA strategy tends to be used for long-term estate planning in conjunction with business or investor liquidity needs. One of the main reasons for this is that it is most effective when you have some way to generate the funds that will offset interest. 

Otherwise, there are more cost-effective ways to access funding if your needs aren’t as complex, such as if you just need funding to renovate the house. In that case, an insurance policy loan or even just a simple personal loan from the bank might suit you just fine.

You should get professional advice from a licensed advisor to find out whether an IFA or another option would best suit your purposes.

What are the costs associated with immediate financing for life insurance?

The main costs involved in an IFA are:

• Interest rate: The interest rate is decided by the lender on the amount borrowed. This can vary depending on the lender and the market conditions
• Administration fees: These may be charged when you first get your IFA set up, but they are usually not that expensive
• Potential tax: Loan interest may be deductible for tax purposes if used for business or investment
• Policy costs: Ongoing insurance premiums and policy charges to maintain coverage and cash value

How do you get an IFA in Canada?

You can only get an IFA set up with a financial institution like a bank or lender. But you should start by speaking with an insurance advisor at PolicyAdvisor to look into whole life policies and find out if an IFA is a good insurance strategy for you.

After you get your policy, you can then sit down with your lender to agree on credit terms, collateral requirements, and more.

Which Canadian Lenders offer IFA programs?

Some of Canada’s leading life insurance companies have special programs for IFAs through their banking arms. This includes: 

• Manulife Bank
• RBC
• BMO
• Scotiabank
• Equitable Bank
• DUCA

An experienced advisor can help you assess the different products offered and see which one can best help you reach your financial goals.

Is an immediate financing arrangement right for you?

An immediate financing arrangement can be a convenient financial tool and a great strategy to help you make the most out of your whole life policy. But, it’s not suitable for everyone. 

An IFA may be a good option if you:

• Need a life insurance policy with a large death benefit
• Intend for their family to use the death benefit to offset tax liabilities
• Have significant disposable income or high retained earnings (in the corporation) to be able to pay premiums all at once upfront
• Have an income-generating business venture or project that can cover the interest
• Are a savvy business owner or investor who needs quick liquidity to deploy the proceeds of an IFA

Immediate financing arrangements vs infinite banking

If you have heard about the infinite banking concept (IBC), an IFA may sound similar to you. But they’re far from the same.

An IFA is a financial strategy that helps mostly high-net-worth clients quickly access funds while still building growth and covering their insurance premium payments. An IBC, on the other hand, allows individuals to leverage the cash value of their policies to finance purchases, investments, and other financial needs while maintaining control over the cash flow.

Key differences between an IFA and IBC

In summary, while both concepts involve leveraging the cash value of life insurance, an IFA focuses on immediate access to funds through borrowing against the policy, while the Infinite Banking Concept emphasizes creating a personal banking system using whole life insurance policies.

Either way, you should speak with a licensed professional before you make a decision. An experienced team of advisors like those at PolicyAdvisor can look at your current situation and help you figure out whether an IFA is the best choice.

Frequently asked questions

What is an immediate financing arrangement?

Immediate financing arrangement or IFA is a financial strategy that helps permanent life insurance policyholders to get an instant loan from financial institutions. IFAs are commonly used by high-income individuals and business owners looking for tax efficiency, flexibility, and long-term wealth planning.

Can I get an IFA before I get life insurance?

No, in general, banks or lenders will want to make sure your policy is secured or at least approved before they will agree to an IFA. Most will require that security first, and only then will they give you financing.

Can I only use life insurance for an IFA?

You can only use a permanent life insurance policy with a cash accumulation component for an immediate financing arrangement in Canada. This is because the financial institution will use the policy and its cash value as collateral security to recoup the advanced money if the credit arrangement falls through.

Other types of insurance policy e.g. term life policies, don’t have this cash surrender value aspect, so they’re not the ideal solution for collateral.

What’s the minimum amount I can borrow through an IFA?

The minimum amount for a line of credit varies by lender, but it’s typically set at $500,000 of minimum borrowing. Some lenders might offer a lower line of credit, like $250,000, if you’re including coverage for your spouse or business partner. Lines of credit for an IFA are usually established for a 10-year term.