Universal Life Insurance in Canada
Universal Life Insurance provides with you an extremely flexible form of life insurance. You can vary your monthly deposit, choose a level or increasing death benefit options, as well as tailor your investment choices within a tax sheltered account. When purchasing a universal life policy, there are many variables to examine. The following five tips can assist in the process:
- Determine whether you want a level cost of insurance (COI) or increasing cost of insurance. A level COI guarantees that your cost of insurance remains level for life and you will not be surprised by future increases. Whereas an increasing COI provides you with lower initial cost of insurance escalating on an annual basis. The advantage of increasing COI is that it can result in a higher cash accumulation in the early years of the policy. The disadvantage is that if the investment component does not perform as expected, the insured can be left with drastically escalating premiums or a policy which is about to lapsed.
- Determine which death benefit option best fits your needs. Generally speaking, universally life policy allows you to choose between an increasing death benefit which is the basic face amount plus any accumulation, or a level death benefit which is limited to the basic face amount. When choosing a level death benefit option, the risk charge can reduce as your cash value builds up, thus resulting in lower risk charges and higher cash accumulation.
- Choose the investment option which best fits your risk profile. Most universal life policies let you choose a savings account, GIC, or index based investments. Be careful to examine the Management Expense Ratio (MER) associated with the index based investments.
- Verify if you have accessibility to your cash value in the early or later policy years. Many universal life policies have high surrender costs should you terminate your coverage in the early years. Its essential that this is clearly explained by your broker.
- Work with an independent broker. Universal life policies can vary dramatically from one company to another and it's crucial you work with a trusted independent broker who can give you unbiased advice.
We have some more Universal Life Insurance tips for you.
Also check out what policies Canadian life insurance companies have to offer: