Universal Life Insurance

What Canadians Should Know About Universal Life Insurance

As a family man or woman, you will definitely want to make sure your loved ones will be protected after you pass away. Within the country of Canada, you will have a variety of life insurance options. Although any policy will provide you with some degree of protection, each policy is different and only one will be idealistic for your individualistic situation. For some, universal life insurance will be the best way to gain protection. This policy is substantially different from permanent and term insurance. Be sure to read the guide below, so you can determine whether or not a universal life policy will be right for you!


A Combination

When it comes down to it, universal insurance is actually a combination of permanent life insurance and investment options. Universal life is designed to help you increase the payouts over a period of time. The permanent life insurance policy aspect of the coverage will provide your family with a set payout. The investment options will make it possible to grow your savings account or the earnings can also be used to increase the payout upon your death.




How It Works

So, how exactly does a universal policy work? Well, it is slightly different from the alternatives. With Universal Life Insurance, your money is actually being invested and therefore has the potential to increase over a period of time. Once the mortality and administration charges have been deducted, the rest of the premium is put into an investment savings account. From there, the money can be used to invest and will earn on interest over the lifespan of the policy. As your account begins to earn interest, those earnings will be transferred back to the cash value part of your account. Some companies will offer a minimum return on investment, so pay close attention when signing up for an account.

And of course, each account will come with a list of investment options, which will resemble mutual funds to some degree. This will allow you to control your investments and shape your future. Although this type of investment might not earn you as much as traditional funds would, it is still a good way to protect your family and grow your cash over a period of time.


Possibility Of Taxation

Many individuals that enroll in life insurance do not take the time to get educated on the policy beforehand. The terms of universal life insurance is rather difficult to understand unless you have previous experience dealing with them. Most people are aware of the fact that this form of policy is designed to help build wealth and secure their assets. However, you must be very careful not to over exceed the policy’s adjusted cost base. If the loan amount is over the limit, you may end up owing a high rate of taxation on the excess. Some policy owners do not mind being taxed on the excess amount, as long as they can earn a decent ROI.


How Does The Premium Work?

When it comes to purchasing any type of insurance the premiums are always going to be different. Some might remain the same, some might rise over time, and some might decrease with given time. However, a universal policy is completely different because you might have the ability to adjust your premiums based on your contract. For instance, you could decrease, increase, or even skip a payment if the terms of your contract have been met. This could be a handy policy when you need to exercise a finical change in your life.


Can The Death Benefit Be Adjusted?

Anytime you purchase life insurance you are going to carefully calculate how much money you need to leave your loved ones, in the event of your death. Of course, over time this need is going to change due to rising costs. If you do need to increase the death payout your only option is going to be to purchase another policy. However, a universal policy is unique, because you might have the option of increasing the death payout. This can be done without having to purchase another policy, as long as the extra coverage is within your plan limits.

You should know that if you do need to increase the death payout you might be required to go through another underwriting process, which could include a medical exam. You also have the option of decreasing the death benefit, but before you can do either of these things your policy must be active for a certain amount of time. The time period is going to depend on the terms of your contract.


Who Should Sign Up?

Truly, a universal policy can be beneficial for anyone. However, those that have hit the maximum RRSP contributions and still wish to increase their children’s estate will want to sign up. Also, business owners, who need a tax efficient method for protecting their business, can benefit from this type of policy. If you don’t have term or permanent insurance, you should definitely consider signing up for a universal policy!