What Is Universal Life Insurance
Understanding How It Works - Benefits
The benefits of universal life insurance has helped make this form of term life insurance very attractive, however Canadians still ask ‘what is universal life insurance?’
With a Canadian universal life insurance policy, you control how much money you earn every month. Tax-free earnings are placed into your universal life insurance account every month, collecting interest and increasing your net worth.
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To help you with understanding universal life insurance in Canada, here’s a brief explanation of the four main parts of the universal life insurance policy.
Mortality Cost
Unlike whole life insurance policies, universal life insurance policies in Canada disclose the “mortality charges”. This is the portion of your universal life insurance premium that covers the “pure” cost of your death benefit. Insurance Direct Canada (IDC) recommends you choose a universal life insurance policy where your mortality cost does not increase as you get older, instead, keep the mortality cost of your universal life insurance policy the same (or level) throughout the your life time.
Administration Charges
Policies for universal life insurance in Canada not only disclose your mortality cost, but also disclose what your annual administration charges will be (the cost of administering your policy plus the premium taxes), which is usually in the range of $100 - $125 per year. Universal life insurance policies in Canada usually guarantee that your administration charges will not change for the life of your policy.
Savings or Investment
Once the mortality costs (cost of insurance) and the administration charges have been deducted from your universal life insurance premium, the remainder of your premium (also referred to as the “cash value”) is placed into an investment savings vehicle where it can grow and earn interest (referred to as the “return on savings”) over the life of your policy. The “cash value” portion of your universal life insurance premium may also be referred to as the “cash surrender value” or “fund value”.
Return on Savings & Investment Options
Any interest that your “cash value” earns over the life of your Canadian universal life insurance policy is credited back to the cash value portion annually and invested…so essentially, your money is compounding or earning money. Some insurance companies will even provide a minimum return on investment. Newer universal life insurance policies in Canada now disclose how your interest is calculated and invested. They even provide a list of investment options (similar to mutual funds) so you have control over your investment. Needless to say this “return on savings” portion of the universal life insurance policy has become quite popular in the past few years. While they may not earn as high a return as mutual funds, the funds will grow “tax-free”, similar to an RRSP and the funds are “creditor proof”. Also, unlike an RRSP, you will have some options for using this money on a “tax-favoured” basis.
Buy Term Insurance & Invest the Rest
A universal life insurance policy may be the answer if you want to buy term life insurance and invest the rest.
Universal term life insurance in Canada is one of the best insurance options available to Canadians and highly recommended for those who believe in buying term life insurance and investing the difference.
IDC can provide you with a quote for a universal life insurance policy or ask us about Whole Life Insurance, Term Life Insurance, Long Term Care Insurance and Critical Illness Insurance or any of our other insurance packages.
If you wish us to explain universal life insurance in more detail or to ask about obtaining a universal life insurance policy in Canada, please Contact An Insurance Direct Canada Agent. Call Toll free at 1-877-762-7802 or visit us online to get an affordable Canadian Universal Life Insurance Quote.
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