Right-Sizing: Why the Best Strategy Isn't Always the Biggest or the Smallest One
Executive Summary
The right strategy is the one correctly sized to what you're actually trying to accomplish, which sometimes means less than what's on the table and sometimes considerably more than you were hoping for. Knowing the difference is the part that requires expertise, and it's the part most worth insisting on from whoever advises you.
Right-Sizing: Why the Best Strategy Isn't Always the Biggest or the Smallest One
There are two ways to get financial advice wrong, and they pull in opposite directions.
The first is the one people expect. A strategy gets recommended at its most aggressive setting because that's where it looks most impressive on paper. Maximum funding, maximum leverage, maximum structure. It's rarely malicious, usually just enthusiasm for what these tools can do when fully deployed.
The second is more common. Someone buys the amount of protection that felt comfortable rather than the amount their family actually needs. They avoid a holding company because it sounded complicated. They keep a term policy because it's cheap, when their need is permanent. Nothing dramatic happens for years, and then something does.
Both are sizing failures. And sizing is the part of this work that actually requires judgment, because there's no formula that produces the answer. It depends on your cash flow, your obligations, your timeline, your business plans, your tolerance for complexity, and what you'll realistically maintain for two decades.
This blog is about how we think about getting that right.
What Right-Sizing Means
We all know the old folk tale, Goldilocks and the Three Bears. One bowl of porridge was too hot, one was too cold, and only the third was right.
Right-sizing is not a euphemism for spending less.
If you have young dependents and a mortgage, the right amount of life insurance is the amount that keeps your family in their home and funds their life without you. That number is what it is. Choosing a smaller number because the premium feels better isn't prudence, it's a decision to transfer risk onto the people you're trying to protect.
If your estate is going to face a substantial tax liability on death, a token policy doesn't solve the problem. It just means your family sells assets at a discount to cover the shortfall.
If your corporation has genuinely outgrown its structure, avoiding a holding company because it adds a layer of administration costs real money every year in tax you didn't need to pay.
Sometimes the correctly sized answer is larger than what a client wants to hear. Our job includes saying so.
Equally, sometimes the correctly sized answer is smaller than what's been proposed to you. A strategy that requires a commitment you can't sustain isn't a strategy, it's a plan built to fail slowly. And a structure with more moving parts than your situation warrants creates cost, administration, and fragility for no return.
The principle is simply this: the right size is the size that accomplishes the objective, and nothing beyond that in either direction.
Not too hot, not too cold, just right. The difference is that Goldilocks got to taste all three bowls before choosing. You don't get to test-drive a twenty-year commitment, which is exactly why the sizing decision deserves proper analysis before you make it rather than after.
Why We'd Rather Show You Three Funding Levels Than One
Most permanent policies can be funded across a range. The same policy designed at $50,000 a year and $15,000 a year are both viable; they just do different amounts of work. The higher-funded version builds cash value faster and creates more future flexibility. The lower-funded version has a smaller footprint on your cash flow and leaves more capital available for other things.
Which one is right depends on your other commitments, your liquidity needs, your business plans, and what you'll be comfortable maintaining for the next twenty years.
We've had a number of conversations recently where a client's response to a proposal was essentially "this is more than I want to commit." In most of those cases the right answer was to redesign at a lower level, because a policy funded at a sustainable level will always outperform a larger policy that gets reduced, paused, or cancelled in year six.
But not always. In a couple of those conversations, the honest answer was that the lower number wouldn't accomplish what the client said they wanted. That's a different conversation, and it's one worth having openly rather than redesigning to whatever figure gets a yes.
Either way, you should be seeing options and trade-offs, not a single number presented as the answer.
📺 Watch: How Life Insurance Works in Canada — covers how policy funding, cash value, and structure interact, which is the foundation for understanding what sizing decisions actually involve.
Understand Your Leverage Before You Use It
This one matters enough that we want to be direct about it.
We recently spoke with someone who had taken money out of a life insurance policy years ago and understood it as a withdrawal. It wasn't. It was a policy loan, and interest had been accruing against it the entire time. The frustration wasn't really about the interest. It was about not having understood the mechanics of something they'd already done.
Borrowing against a policy's cash value is a legitimate and powerful strategy. It's the mechanism behind the Immediate Financing Arrangement, the Insured Retirement Plan, and most of what gets discussed under the heading of infinite banking. But it involves real obligations, and there are meaningful differences between borrowing from the insurance company and borrowing from a bank with the policy as collateral. Interest rates differ. Repayment expectations differ. The effect on your death benefit differs. The tax treatment can differ.
None of that is a reason to avoid leverage. Used correctly, these structures are among the most effective tools available to incorporated business owners, and we implement them regularly. It's a reason to make sure you can explain the strategy back in your own words before you sign anything. If you can't, either the explanation wasn't good enough or the strategy is more complex than your situation calls for. Both are worth resolving before proceeding, not after.
📺 Watch: How to Leverage a Whole Life Insurance Policy as Collateral for Loans in Canada — walks through both borrowing routes, from the insurance company and from a bank against the policy, and the trade-offs of each on speed, cost, loan-to-value, and repayment terms.
Clean Up Before You Build
A pattern that comes up repeatedly is clients wanting to discuss advanced planning while they have unresolved issues in their existing structure.
Here are a few common examples:
Shareholder loan balances that haven't been addressed. If you've taken money out of your corporation as a shareholder loan and it hasn't been repaid within the required window, there are real tax consequences. We've encountered situations where this was treated as minor by a previous accountant and turned out to be a big problem.
Inactive corporations that were never properly wound up. A dormant company still has filing obligations, and an unused entity sitting in your structure can complicate everything from lending to estate administration.
Property held in the wrong place. Real estate sitting personally that should be corporate, or corporate that should be personal, or transferred between the two without proper documentation of the tax consequences.
Outstanding filings or incomplete records. Underwriting for larger insurance cases often requires third-party financial verification. If your corporate records aren't current, that becomes a bottleneck at exactly the wrong moment.
This isn't exciting work, and it's cheaper to fix now than later. More importantly, several of these issues will block or complicate the strategies you actually want, so addressing them isn't a detour from your plan. It's the first step in it.
📺 Watch: Legal and Financial Planning for Business Owners with Steve Parr of Parr Business Law on The Wealth Multiplier Podcast — Laurent and Steve cover corporate structuring, share ownership, OpCo/HoldCo arrangements, and the kind of legal housekeeping worth resolving before layering anything else on top.
The Basics Almost Everyone Is Missing
We want to say this plainly, because it's the most common gap we encounter.
Across our recent client conversations, the single most frequent oversight wasn't insurance, investments, or corporate structure. It was that a large share of successful, incorporated, financially capable people don't have a current will.
Some have never made one. Some have one written decades ago under entirely different circumstances. Some have a personal will but no corporate will, which matters considerably if you hold shares in a private company and would prefer your estate not pay probate fees on their full value.
The foundational package is short, and it isn't expensive relative to what it protects. A current will. A power of attorney for financial matters. A representation agreement for health decisions. Reviewed and correct beneficiary designations on every policy and registered account. And for incorporated business owners, a corporate will covering your private company shares.
Trusts, estate freezes, and multi-generational structures are all genuinely valuable, and they're the second storey of a building. We've advised several clients recently to get the foundation done before we build on it, which has cost nothing except a short delay in the more interesting conversation.
🎙️ Listen: Trusts in Canada, with Equitable Life's Tax and Estate Planning Consultant — Laurent and Bryan McNulty discuss how estate documents and trusts actually work in Canada, and why the foundational pieces need to be in place before the more sophisticated structures make sense.
When There Actually Is a Deadline
Most of the above argues for sequencing and patience. There's an important exception, and it comes up more often than you'd expect.
Sometimes there's a transaction with a real clock on it. An accepted offer to acquire a business with a closing date. A sale that has already happened, leaving open questions about how existing policies should now be owned. A departure from Canada with tax residency implications. A partnership change.
In those situations the sequencing advice inverts. You don't have the luxury of doing things in the ideal order, and the priority becomes getting the structural decisions right before the deadline rather than perfect.
What matters most in those windows is coordination. An acquisition needs the financing structure, the ownership structure, the tax planning, and the legal review all moving at once, and it needs independent legal advice before closing rather than after. This is where having someone whose job is to keep the accountant, the lawyer, the lender, and the insurer pointed in the same direction is worth a great deal.
If you have something with a date on it, tell us early. The options available three months out are meaningfully better than the options available three weeks out.
Key Takeaways
- Sizing is where the expertise lives. There's no formula that produces the right number. It depends on your cash flow, obligations, timeline, and what you'll actually maintain, which is why it deserves real analysis rather than a default setting.
- Under-sizing is a failure too. If you have dependents, debt, or a large future tax liability, the correct answer may be larger than the one that feels comfortable. A strategy that doesn't accomplish the objective isn't a conservative choice.
- Ask for options, not a recommendation. Any proposal should come with two or three funding levels and a clear explanation of what each one gives up. A single illustration isn't a choice.
- Never implement leverage you can't explain. If you can't describe a borrowing strategy back in your own words, either the explanation was inadequate or the structure is more complex than your situation warrants.
- Get the foundation done first. A current will, powers of attorney, a representation agreement, correct beneficiary designations, and a corporate will if you hold private shares. Everything sophisticated builds on top of these.
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