Also known as “adjustable life insurance”, Universal Life insurance is a type of permanent life insurance similar to Whole Life in some ways. The benefits of this type of life insurance over Whole Life lie in its flexibility. With Universal Life insurance, you have the option of increasing or decreasing monthly investment contributions.
Universal Life payment is actually broken down into two parts but most are not made aware of this unless there life insurance broker is completely transparent. This payment break down includes a cost of insurance (yearly renewable or level) and the second part is the investment component (what you invest into an investment of your choice). In laymen’s terms one is completely guaranteed deemed Term 100 or Level Cost, premium is guaranteed level cost for life till age 100, and your investment is in addition to your set monthly guaranteed premium.
The other U.L product called YRT (yearly renewable term) means that your cost of insurance will increase as you get older because you are considered at more risk. This second product was not properly explained to the consumer and sure enough years later, the client did not understand why they’re supposed permanent insurance premiums were increasing. The notion was that the investment should have covered those rising costs but in 2008 when the economy collapsed many were left in hot water either paying higher premiums because of the failed investments and outlandish forecasts. Also many were not explained that if they used the build up cash value as a loan there would be no money left to fund the higher costs of insurance. It is always very important to make sure you understand the product thoroughly. As of late most life insurance brokers are being forced to be more forthcoming in regards to Universal Life Insurance because of government’s regulation and legislation to be more upfront with clients. Lifeman has never been a real fan of the Universal Life Insurance unless its fully explained to the client and they understand the risk.
Advantages if Universal Life
Universal Life Insurance can be especially favourable for those with changeable incomes who may have to adjust their annual bills as a result. As long as there is enough in the cash value to cover insurance charges, then the policy coverage continues uninterrupted.
The accumulating cash value under universal life insurance grows on a tax-deferred basis. Unlike whole life, universal life insurance is cheaper to maintain as the amount in the cash value can maintain the policy and a time can arise when no other premiums are required. However if the premium payments are too little for a long period of time, then the policy could lapse.
The rate of which the interest rate increases the cash value of a universal life insurance policy is guaranteed to never drop below a level defined in the insurance contract. In times of high interest rates this cash value increases rapidly. But it is important to note that if the insurance company’s interest rate drops to this defined minimum level, you may have to pay in more premium amounts in the future to cover the difference.
Another bonus is in the scenario that you run a business which can face lawsuits; a well set up universal life insurance policy can ensure that creditors cannot touch the cash value you have accumulated.
The biggest advantage tax wise on a Universal Life Insurance product is that upon your death, this well set up policy will give your beneficiaries the entire cash value plus the face value, tax-free. Not even a RRSP can offer you this option, if you die your spouse will still have to pay income taxes on your contributions.
Contact Jack Bendahan, Life Insurance Advisor to assess your needs and help you determine if a Universal Life insurance policy is a fit for you. Or if you would like to get a free quote you may click here: Toronto Life Insurance.
