Canadian Universal Life Insurance Options

Universal life insurance policies can differ significantly from one company to the next. The features and benefit options will vary according to each company's policies. Each type of plan is carefully designed to meet the needs of specific situations. What works for you may not work for someone else. We can help you choose the type, amount of coverage, and options to satisfy your needs, financial goals and budget.

 

Be sure to read these other related articles that can help you save money:

 

Should I buy term or permanent insurance?

 

How to avoid the life insurance illustration trap!

 

 

 

Why universal life insurance?

 

Universal life combines two key financial planning priorities - insurance and savings - in a single tax-advantaged plan. Enjoy benefits such as:

• tax-deferred interest growth on your deposits
• mutual-fund style investment options
• cash value leveraging insurance vehicle for retirment income program
• ability to pay for your insurance through the tax-deferred cash value growth
• a 100% tax-free death benefit including your tax-deferred savings!

Who needs universal life insurance?

 

Do you want to actively manage your life insurance policy? Universal life insurance is designed to grow with you and your financial needs.

 

Some key uses for universal life include:

• cost effective permanent financial protection for your family
• build a tax-advantaged cash fund that can:
  • help pay for the premiums
  • help pay your mortgage down faster
  • help pay for home renovations
  • help subsidize increasing education costs
  • provide cash for emergencies
  • help take advantage of a personal or business opportunity
  • increase your insurance without evidence of insurability
• key-person business insurance
• provide funds for a business retirement buy-out
• create an additional source of retirement income
• estate planning (reduce tax impact to your heirs)

Investment options

 

Choose from a range of investment options from lowest to highest risk:

• Daily Interest Account (DIA)
• Guaranteed Interest Accounts (GIAs)
• Indexed accounts (or Equity/Stock indexed accounts)
• Mutual fund style accounts managed by major national investment firms

Some companies offer balanced accounts which include a mix of the above options. You can also select your mix of investments options to best reflect your risk tolerance.

 

Death benefit options

 

You choose the death benefits option that best fits your need. You can change this option at any time. If the insurance amount is increased by this change, evidence of insurability will be required.

• Level face amount: If your insurance need is fixed, this is the most cost effective option. The death benefit is the greater of the face amount and the fund value. If your fund value grows, the amount of insurance is reduced proportionately, thereby reducing your overall insurance costs.
• Face amount plus fund: Your beneficiary receives the face amount plus the fund value.
• Fund builder/maximizer: This option is designed to maximize your fund value. The face amount will be reduced to minimize the insurance cost while keeping your policy tax-exempt as much as possible. Your beneficiary receives the face amount plus the fund value.
• Indexed face amount: Your face amount is indexed on an annual basis in order to fight the effects of inflation.

Cost of insurance options

 

The selection of this option must reflect your fund value goals for both the short and long term.

• Yearly term: With this option, the Cost of Insurance (COI) is based on your attained age and increases as you get older. This option is ideally offers the opportunity for providing higher growth potential in your savings accounts in the short to mid-term than the level term COI structure.
• Level term: Each month's COI is based on your age when the policy is issued and will not change over the life of the policy. The rates are higher than yearly term in the early years but lower in later years.
• Quick Pay: Pay your premiums for a short period of time, say 10, 15 or 20 years, at which point your policy becomes fully paid up. You owe nothing more, ever again, and your policy is in force for life. Be careful, though. This provision must be built into the plan and fully guaranteed in writing. Otherwise you may end up with an "estimated quick pay plan" which is not guaranteed to become paid-up. There are very few companies that offer this option.

Cancellation penalties

 

You can't ignore these! Penalties occur when you withdraw or cancel your policy within a predetermined period of time. This period can range from zero (meaning there is no penalty) to 12 years.

 

The penalty amount can range from zero (again, meaning no penalty) to 4 times the yearly cost of your insurance. These amounts can be quite high, which could mean the considerable loss of invested capital.

 

This is not necessarily bad news. In fact, generally speaking, the higher the penalties, the greater the rewards. The companies with higher penalties simply wish to emphasize to you that their plans are designed for long-term investments, and should you carry them out for the long-term you will be rewarded.

 

Interest bonuses and discounts

 

Should you keep your plan in force long enough you may be rewarded with interest bonuses and insurance discounts. Added to the existing tax-deferred growth, this bonus can significantly enhance your financial future.

 

Some companies offer higher bonuses than others. Some don't offer any bonuses, but offer a discount on investment management fees (this is sometimes a much better option). Some companies give no incentives whatsoever; from these stay away! You must understand the conditions and requirements to ensure you can benefit from this provision. If it does not work out in your favour (because you cannot satisfy the requirements), then you may wish to compare with other plans with different or no bonus structures.

 

Amount of benefit coverage

 

Depending on the policy you choose,

• minimum coverage can be as low as $10,000.
• maximum coverage is virtually unlimited.
• indexed face amount to help fight the effects of inflation.

Rate banding by amount of insurance

• band 1: $25,000 to $99,999
• band 2: $100,000 to $249,999
• band 3: $250,000 to $499,999
• band 4: $500,000 to $999,999
• more reduced rates for up to $50,000,000

Rates decrease at each higher band. If your insurance need is just below a band break, obtaining more coverage can actually save you more money.

 

Length of terms

 

Length of terms generally available are:

• 5 years
• 10 years
• 20 years
• Term to age 65
• Term-life (to age 100), no-cash value permanent plan.
• Term to permanent, a term plan that automatically converts to paid-up permanent insurance.

Some policies have guaranteed renewal rates, others do not. Make sure to ask, and read your illustration carefully (it should be mentioned there).

 

Underwriting categories

 

A broker/advisor cannot determine if you qualify for preferred rates. Each company has their own criteria for assessing your health risk. The preferred ratings can only be determined once underwriting is completed, that is, once they have completed all medical and/or investigative requirements. Also note that very few people qualify for "super-preferred" or the "absolute best" rates.

 

Until then, be prepared to pay for standard rates. The last thing you need to face is disappointment.

 

Companies use ratings similar to these:

• best-risk non-smokers
• better than standard risk non-smokers
• standard risk non-smokers
• users of tobacco or nicotine products other than cigarettes/marijuana
• cigarette/marijuana smokers
• higher (worst) ratings if your health is sub-standard. These ratings can vary greatly depending on your illness.
• declined or unnaceptable risk

The above is just a guide. Some policies only have standard smoking and non-smoking ratings. Be sure to ask for details if you feel you may qualify for better ratings.

 

Coverage types

 

Some companies will offer the following type of coverage:

• single-life
• combined coverage
• multi-life
• joint first-to-die
• joint last-to-die

Joint coverage is an excellent way to insure your mortgage or other jointly-held debt and is generally offered at a discount.

 

Renewable & Convertible

 

If you are considering keeping your policy in force for the long run, consider a plan with a guaranteed renewable option up to age 80 (that is, you can continue to renew your policy even if your health deteriorates). Also consider a plan that is convertible to age 75. Note that you must convert to a permanent policy that is carried by the company with whom you are insured at that time.

 

Additional options

• Return of all premiums paid upon expiry of policy
• Critical illness bundled coverage
• Total disability waiver
• Child protection
• Guaranteed insurability
• Accidental death & dismemberment
• Spousal term rider

No extra charge options

 

These benefits are offered by some companies. Ask for details.

• Bereavement counselling assistance: reimbursement of counselling fees up to $1,000 after the death of any insured person in the plan.
• Compassionate assistance program - in cases of terminal illness, the policy owner may be able to obtain an advance payment of the death benefit in the form of a collateral loan.

Next page >

 

Contact a professional broker for your free consultation.

 

 

 

Click a link below to jump to another section of the article:

 

Term Insurance

 

Participating Whole Life Insurance

 

Return to life insurance education center