The Four Tax Benefits of Universal Life Insurance

Universal life insurance can provide a tax haven for many Canadians. The following are four key tax advantages of universal life insurance.

1. Accumulation fund grows on a tax-sheltered basis. Each universal life policy has a minimum and maximum premium. The minimum premium generally covers the cost of insurance and any administrative charges, and anything above the minimum premium, up to the maximum, goes into the policy accumulation fund. This accumulation fund grows on a tax-sheltered basis. Most insurance companies have a range of investment options that the insured can choose from. BMO Insurance has over 400 investment accounts within its Universal Life policy.

2. Death benefits are paid out tax-free. Applicants can choose between a level death benefit or an increasing death benefit. The increasing death benefit pays out the base amount plus the accumulation fund. Both amounts are paid out to the beneficiary tax-free.

3. Premiums withdrawn from the accumulation fund are paid with pre-tax dollars. When the applicant uses the policy accumulation fund to offset future premiums, he or she is essentially paying their premiums with pre-tax dollars. The money within a universal life policy or the accumulation fund within the universal life coverage grows on a tax-sheltered basis. If the fund never leaves the policy and is used to offset future premiums, there are no tax implications.

4. Universal life contributions do not impact RSP or tax-free savings account contribution limits. Universal life contributions are stand-alone contributions that do not impact other retirement or tax-free savings account contribution limits.

For more details on Universal Life Insurance in Canada, please contact us at 1-866-899-4849 or visit our Universal Life Quote Page

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