Universal Life Insurance

Universal life is one of the more complicated forms of life insurance and may be appropriate for individuals who have maximized their RRSPs contributions, have investment accounts such as the Tax-Free Savings Account, have a need for insurance, and who can also contribute more to the insurance policy than simply the cost of the insurance.

Universal life insurance has two components the actual insurance and a separate savings component. The savings component provides tax-deferred growth within a limit specified by Canada Revenue Agency. The policy owner chooses the investments in the universal life plan and in most cases there are no guarantees as to the value of the savings component of the plan.

Universal life insurance is the only type of life insurance from which you can withdraw money from the policy without sacrificing the policy. When funds are withdrawn from the plan, they are taxed. If funds are not withdrawn, they will pass on to the policy beneficiary.

You can also take the cash surrender value of such a policy if you no longer want insurance.

Universal life insurance is the only type of life insurance from which you can withdraw money from the policy without sacrificing the policy.

Universal Life Insurance - Pros and Cons

  • Universal life insurance is extremely flexible
  • There are two parts to UL Insurance the cost of insurance and a separate investment component
  • The cost of insurance can increase with age as one gets older or can remain the same
  • The investment component offers flexibility of investment ranging from guaranteed rate type investments to more aggressive equities with no guarantees
  • Investment growth of the investment account provides tax sheltered growth
  • Upon death, tax free payments can be made in most cases
  • There are no deductions against income unlike RRSP contributions
  • Cash values are not guaranteed
  • Non-guaranteed investments in the investment account are subject to market risk
  • Can require management of investments and expertise

Universal life insurance is a permanent form of life insurance that cannot be cancelled by the insurer once issued, as long as the premiums are paid to cover the cost of insurance. As well, individuals who select a level cost of insurance will not see their premiums increase. Individuals who cannot over fund their policies are in many cases better off with other forms of life insurance.

This type of insurance is covered by Assuris within certain limits. Most insurance companies and policies are covered by Assuris and individuals should look at how insurance policies are covered by visiting the Assuris website.

Universal life insurance provides individuals with a suitable solution to deal with longer term insurance needs and tax deferred growth and savings. Individuals should always consult with experienced insurance agents. Every individual and each family has unique circumstances and needs.

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