Universal life insurance is a policy that covers a policyholder as long as he/she lives. On top of being insurance, it is also a saving product because universal life insurance accumulates cash value.
It is different from whole life insurance. Universal life insurance is an “unbundled insurance.” This means you can vary your monthly deposit, choose a level or increasing death benefit option, or tailor your investment choices within a tax sheltered account.
This type of insurance was created to correct the drawbacks of whole life insurance.
You can find out more about this product from the video below.
Male, 44 years old, non-smoker, level COI, minimum funded, no serious health pre-conditions, universal life insurance policy for $200,000 coverage
Female, 35 years old, non-smoker, level COI, minimum funded, no serious health pre-conditions, universal life insurance policy for $500,000 coverage
Male, 51 years old, non-smoker, level COI, minimum funded, no serious health pre-conditions, univeral life insurance policy for $200,000 coverage
Lorne Marr from LSM Insurance shares his experience:
“Universal Life policies are a type of Permanent Life Insurance policy. They offer more flexibility than Whole Life type policies and most Universal Life policies have a minimum and a maximum premium and you can put extra money into a savings component that can grow on a tax-shelter basis.
Universal Life policies also come with a variety of cost of insurance. You can have a cost of insurance where it increases as you get older or you can have a level cost of insurance. Universal Life policies can have a level death benefit or an increasing death benefit.
So, I guess, the take-away message with a universal life policy is that there is a lot of flexibility in those policies and you gonna wanna work with an independent broker who can customize that policy to your specific needs.”
Lorne Marr from LSM Insurance shares his view: Universal life insurance is a permanent type of life insurance. There are really three types of permanent insurance in Canada. There is term 100 insurance, which is a permanent policy with no cash value. There is whole life insurance which is a permanent policy with a built-in cash value. And lastly, there is universal life insurance which is a very flexible form of permanent life insurance. It allows you have lifetime protection and an optional savings element.
Universal life insurance policies also allow you to choose between a variety of cost of insurance options and the investment component; you can choose between no-risk type of investments, such as GICs, guaranteed investments, or equity type of investments and those can be a Canadian equity fund, a US equity fund, could be a balanced fund. You do have to watch out for the MERs on some of these funds as they may be a little higher than outside MERS, however, it offers some unique tax sheltering and some companies even offer into the hundreds of investment options.
What’s really good for the person who wants to have a life insurance policy and wants to have more flexibility with what they do in terms of the investment side of things. That investment component can even be used to take a premium holiday, if you need to miss a premium, or if you want to have a policy paid off in a limited number of years. It offers a lot of flexibility, there is a lot of differences between companies. It’s very important to that if you’re looking at a universal life policy, that you work with a broker who has access to all the different companies and can provide you unbiased advice.
There are numerous cases in which whole life insurance is your best option:
Here is a brief comparison of how universal life insurance compares to term life insurance and whole life insurance.
Term Life Insurance | Whole Life Insurance | Universal Life Insurance | |
---|---|---|---|
Coverage length | Limited (e.g. Term 10 – coverage for 10 years) | Life long | Life long |
Insurance coverage | Yes | Yes | Yes |
Cash accumulation | No | Yes | Yes |
Can choose amounts going into insurance and cash accumulation | No | No | Yes |
A universal life insurance policy allows you to decide if the investment portion of your monthly contribution will be invested into a savings account, GIC, or index based investments.
Universal life insurance rates vary depending on your choices – you can decide on a monthly basis how much you will contribute. Typically, universal life insurance policy rates will be higher than term life insurance’s rates since you are choosing life-long protection with the additional feature of an investment component.
| Expert tip from Steve Hazlehurst“When I think of Universal Life, I think flexibility. The option to pay the bare minimums to keep the policy going, or to over contribute and grow the investment inside the policy (which you also have the flexibility to choose). The ability to choose from an annually renewing cost of insurance, or to level it from the get go. Cash values generated inside the policy can pay for future monthly premiums, can be withdrawn, or can be used as collateral to obtain a tax-free loan. For example, Term life insurance is more rigid. It is a little more boring, but because you can usually get a lot more coverage for the money, this is going to be the right solution for the majority of people. When shopping for my clients, I am admittedly looking for the best deal, but also matching that with companies who have a strong reputation and good conversion options, in the case the client wants to exercise their right to convert their policy to permanent insurance (Universal Life or Whole Life) down the road. |
Expert tip from Eric Watchorn“When considering a permanent policy, the main client differences pertain to the extra contribution of the-beyond the bare insurance cost. As discussed, pure permanent insurance is simply defined as Term100 with a level death benefit. As with shorter term coverage, the costs is pure insurance, with no overage, no performance, no side account. Universal Life is an extension of the Term100 policy type that allows clients to have a side-account that can allocate extra cash into pure savings with nominal performance and yet good safety, all the way to some equity allocations, bonds, treasury bills etc. At death these extra sums are added to the base death benefits as well. Although Universal life coverage often includes several investment options, most people like to see their insurance policies resemble low or no risk, and such, also as an asset to the family net worth statement, and therefore, most keep the side account as low risk and an added savings component to possibly enhance and add to the existing death benefit coverage. |
When purchasing a universal life policy, there are many variables to examine. The following five tips can assist in the process:
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