Universal Life Insurance

Universal life insurance is a lifelong protection plan with an investment component that allows you to accumulate wealth while deferring taxes. Unlike term life insurance, it has no age or time limit for expiration, as long as premiums are paid. It combines an insurance policy and an investment account, where a part of your premiums goes towards insurance and the remainder can be invested.

Universal life insurance in Canada offers a flexible solution for individuals looking for a policy that can adapt to their changing financial circumstances. Policyholders have the option to adjust their premiums and death benefit, and also to withdraw or borrow against the cash value of the policy. This type of insurance is particularly attractive to high-income earners who are looking to maximise their wealth and minimise their tax obligations.

Indexed Universal Life Insurance (IUL)

Indexed universal life insurance allows policyholders to allocate a portion of their premium payments into an indexed account that is linked to a specific stock market index, such as the S&P 500. The cash value growth is tied to the performance of the index, offering the potential for higher returns. However, there is often a cap or limit on the maximum return that can be earned.

Guaranteed Universal Life Insurance (GUL)

Guaranteed universal life insurance provides a fixed and guaranteed death benefit for the lifetime of the policyholder, as long as the required premium payments are made. Unlike other universal life policies, GUL focuses primarily on providing a death benefit rather than building cash value. It offers stability and predictability, making it an attractive option for individuals seeking long-term coverage without the need for cash accumulation.

Variable Universal Life Insurance (VUL)

Variable universal life insurance allows policyholders to invest a portion of their premiums into various investment options, such as stocks, bonds, or mutual funds, known as sub-accounts. The cash value of the policy fluctuates based on the performance of the chosen investments. This type of policy offers potential for higher returns but also carries investment risks, as the cash value is subject to market fluctuations.

Adjustable Universal Life Insurance (AUL)

Adjustable universal life insurance offers policyholders the flexibility to adjust their premium payments and death benefit over time. This allows individuals to customize their coverage according to their changing financial needs. AUL policies often include a cash value component that can grow over time, providing additional financial flexibility and potential for future withdrawals or loans.

No-Lapse Universal Life Insurance (NLUL)

No-lapse universal life insurance, also known as guaranteed universal life insurance with a no-lapse guarantee, provides policyholders with a guaranteed death benefit as long as the required premium payments are made. NLUL policies are designed to remain in force even if the cash value becomes insufficient to cover the ongoing costs. This type of policy offers peace of mind and ensures that the death benefit is maintained regardless of fluctuations in the cash value.

Each type of universal life insurance has its own unique features and benefits. The choice of the most suitable option depends on factors such as individual financial goals, risk tolerance and desired flexibility. At MyLegacy Insurance Services, our experienced advisors can provide comprehensive guidance to help you understand the various types of universal life insurance and assist you in selecting the policy that aligns with your specific needs and objectives.

Level Cost of Insurance (LCOI)

Offers a fixed premium for lifetime coverage with a guarantee. Premiums are determined based on the age of the insured at the time of issuance, and a minimum premium payment is required to prevent the accumulation fund from being zero.

Yearly Renewable Term (YRT)

Provides guaranteed coverage with premiums based on the insured's age at each coverage anniversary. Although YRT premiums are initially lower than LCOI premiums, they increase annually until the insured reaches age 65, at which point they remain constant. The accumulation fund starts building up value from the first years, even with minimum premium payments. A surrender charge period of seven years is associated with this cost of insurance option and accumulation surrender charges are common in Universal Life Policies with YRT cost of insurance options during the first ten years of the term.

Universal life insurance offers investment flexibility to policy holders.
Premiums are adaptable as long as the account has sufficient funds to cover them.
Withdrawals and loans can be made from the insurance account, but the terms may differ.
The cash value of the policy may change depending on investment performance.
Higher returns may result in an increase in cash value, while lower returns may result in a decrease.
Policy holders can also use the policy as a source of tax-free retirement income.

How Does Universal Life Insurance Work?

Universal life insurance is a permanent life insurance policy that includes an investing account. With this type of policy, you pay a regular premium that goes towards both the cost of insurance and your investing account. The insurer deducts the insurance premiums and policy fees from your account each month, while the remaining money earns interest on your investments. The interest you earn on the unspent money is tax-deferred, up to a limit set by the government.

The investing account in a universal life insurance policy provides you with flexibility and control over your funds. You can select from various investment options, such as mutual funds or stocks, and decide how much to allocate to each investment. The cash value of your policy may grow as you earn interest on your investments, and you can use this cash value for withdrawals or as collateral for a loan. The amount of cash value in your policy varies depending on the premium payments, interest earned and investment performance.

Do You Need Universal Life Insurance?

Universal life insurance may be suitable for you if:

Interested in increasing your savings in addition to your RRSPs and TFSAs.
Looking for a way to leave more money to your children and grandchildren.
A business owner seeking a tax-effective way to preserve your company's value.

Deferred Tax Growth

Universal life insurance is a tax-advantaged policy in Canada. By paying more in premiums than the monthly insurance costs, you can use the tax-deferred investment account within the policy, subject to certain restrictions outlined in the Income Tax Act.

Investment Opportunities

There are various investment accounts to choose from, including guaranteed interest and equity-linked accounts. Guaranteed interest accounts offer a minimum rate of return, while equity-linked accounts are determined by Canada's top money managers. Guaranteed market-indexed accounts and enhanced market-indexed accounts provide exposure to the equity market with guaranteed never to be negative net returns.

Access to Cash Value

You can use part of your tax-deferred investment account to supplement retirement income, pay for education expenses, cover costs in case of disability, or establish an emergency cash reserve. For more information you can consult your insurance advisor @ MyLegacy Insurance Services.