Universal Life Insurance in Canada: Understanding Policy Surrender Charges

Universal life insurance policies offer life insurance protection with an optional investment component.

The monthly cost of insurance (including taxes, administration, and policy fees) is deducted from the planned premium, and the excess goes into an investment account often referred to as an accumulation fund.

The investment within the accumulation fund can range from low-risk investments such as GICs or bond funds to higher-risk investments such as equity or speciality funds.

Most universal life policies in Canada have surrender penalties if the plan cash value is accessed within the first ten policy years. The surrender penalty arrangement can vary from company to company. In fact, some companies have zero surrender charges on their universal life policies, while others have a 100 per cent surrender charge within the first three policies years. The charge then decreases slightly each year up to ten years after the first three years.

For more details on surrender penalties and universal life policies in Canada, please contact us at 1866-899-4849 or visit our Universal Life Quote Page.

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  • George H
    November 24, 2013 at 5:43 am

    You make a good point on these surrender charges. My friend just got burned bad

    • LSM Insurance
      November 24, 2013 at 1:55 pm

      Thanks George.Sorry to hear about your friend. If unsure definitely check with your broker or the insurance carrier and get the response in writing.

  • Daniel Kahan
    July 1, 2013 at 6:44 pm

    Because the CI rates have increased by 30% this means that the Fair Market Value of a CI policy determined by its replacement cost has also increased,especially if the policyholder is now substandard or uninsurable.So it might make sense to consider transferring the ownership of the policy from the individual to his/her corporation and extracting the FMV tax-free.Obviously the policyholder would need to discuss the tax implications with their accountant but if they would like a FREE estimate they or their agent can contact me with their age,sex,policy coverage and premium payment details.

  • Cathy
    July 1, 2013 at 2:26 pm

    Which company has the highest Universal life surrender charge. I hate the idea of being locked in

    • LSM Insurance
      July 1, 2013 at 6:40 pm

      Thanks for the note. Most insurance company have several versions of Universal Life insurance so it depends which plan you are looking at. Some carriers have level cost Universal Life plans without any surrender charges.

  • LSM Insurance
    May 10, 2012 at 3:13 pm

    Thanks for the note – you should contact your insurance company and ask for something in writing verifying if there is a taxable gain on your policy.

  • Katrina
    May 10, 2012 at 2:41 pm

    Hi there,
    I am not sure if I have to pay tax on the cash surrender of cancelling my universal life which I bought offshore before I relocate to Canada, I would be much appreciated if you can help me with it. thanks


  • LSM Insurance
    February 18, 2012 at 10:20 am

    Thanks for the note. You would have to contact your insurance company or your broker to get the cash value. Be sure to ask them if there will be a taxable gain on this amount.

  • Sylvia
    February 17, 2012 at 7:36 pm

    After July monthly payment I will have paid for a total of 20 years on a $… whole life policy, which was taken out with Norwich Union on …… .

    I am considering cashing in my policy as I have paid premiums of over $… already and must continue till death and still only the $…. will be paid to my benificiaries.

    Please tell me what will be the amount I will receive if I decide to do the above.