Universal Life Insurance
What is Universal Life Insurance?
Universal life insurance is a type of permanent life insurance that provides flexibility and coverage for the insured’s entire lifetime, as long as premiums are paid. Universal life insurance gives you access to flexible premiums, allowing you to save for your future goals.
Why should I buy it?
Financial Security
Universal life insurance can help provide financial security to your loved ones, knowing they will be supported and receive tax-free payment in the event you pass away.
Flexible Premiums
You choose the amount and frequency of your premium payments. If you choose to pay more in premiums, you can build your cash value faster.
Cash Value Growth
The premiums you pay for universal life insurance are invested, creating cash value. These funds will grow can be used as a loan and be used in emergencies.
How does Term Life Insurance work?
An RRSP is a retirement savings and investing vehicle for employees and the self-employed in Canada. It offers tax benefits to encourage retirement savings, such as tax deductions for contributions made.
Your RRSP contribution limit for 2024 is 18% of your 2023 earned income or $31,560 (whichever is lower), plus any unused contribution room from previous years. An RRSP can include a variety of investments like stocks, bonds, GICs, and
Lifetime Coverage
Universal life insurance ensures that you are covered for your entire life time as long as premiums are paid. Unlike whole life insurance, you can adjust the value of your coverage without terminating your policy.
Flexible Premiums
To keep your policy active, you must pay “premiums”, or regular
payments, monthly, quarterly, or annually, depending on the policy
terms and your preference.
The amount you pay in premiums are variable, meaning you can
adjust the amount and frequency you pay in a given year.
Death Benefit
The death benefit is the amount of money that will be paid to the
beneficiaries if the insured person dies during the policy term.
The policyholder can adjust the death benefit amount, increasing
it, or decreasing it to pay lower premiums. Upon death of the
insured, the beneficiaries receive the death benefit payout
tax-free, providing them with financial support.
Cash Value Growth
Universal life insurance has cash value built in. Meaning, the
premiums you pay to the policy is invested and grows over time
based on the prevailing interest rate on a tax-deferred basis.
These funds can be accessed through policy loans or withdrawals,
or it can be used to pay premiums.
Policy Loan
Universal life insurance allows you to borrow against the cash value you’ve accumulated in your policy. Policy loans accrue interest and can be paid out-of-pocket or added to the loan balance. However, unpaid loans reduce the death benefit paid to beneficiaries.
Let's Compare
Feature | Term Life Insurance | Whole Life Insurance | Universal Life Insurance |
|---|---|---|---|
Duration | Specified Term (e.g.: 10, 20, 30 years) | Lifetime | Lifetime |
Premiums | Fixed for the term | Fixed for life | Flexible |
Cash Values | None | Yes, grows at a
guaranteed rate | Yes, grows
based on
interest rates |
Investment Component | None | None | Yes, tied to
interest rates |
Death Benefit | Fixed, payable if
death occurs
during term | Fixed,
guaranteed | Adjustable |
Cost | Lower cost
premiums | Higher cost
premiums | Can be lower or
higher Depending on options |
Policy Loans | Not Available | Available | Available |
Flexibility | No flexibility | Limited (Cannot change premiums/death benefit) | High (Can adjust premiums and death benefit) |
Coverage Purpose | Temporary needs (e.g., mortgage, income replacement) | Lifetime
protection,
estate planning | Lifetime
protection,
flexible for
changing needs |
Coversion Options | Often convertible to permanent policy | Not applicable | Not applicable |
When should I buy it?
Flexible on Premium Payment
If you want flexibility in your premium payment and coverage and have access to built in cash value such as loans or withdrawals.
Permanent Life Insurance
If you want permanent life insurance that lasts throughout your lifetime, this option is for you.
Note: Failure to pay for your premiums and inability to cover your insurance with cash value will terminate your policy. Surrender charges (fees) will be incurred upon early termination of your policy or when you decide to withdraw money from the account.
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