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Universal Life Insurance 

Universal life insurance is a life insurance plan that offers lifelong coverage and builds cash value you can use while alive. You have the ability to alter both the extent of coverage you have and the premiums you pay for your universal life insurance policy to match your requirements.

You can also choose to make additional deposits to increase your cash value. 

If you’re looking for an insurance policy that will meet your needs today and in the future, universal life insurance might be the right choice for you.

What is universal life insurance?

Universal life insurance provides you with the security you want in addition to allowing you to build your funds at the same time. A wide variety of investment account choices that provide tax-favored savings growth are included in the coverage provided by the policy.

This provides the insured with a lifetime of security and peace of mind.

Universal life insurance is a kind of life insurance policy that will protect you for the whole of your life, provided that you maintain payment of the required premiums during your policy’s duration.

A part of the premium you pay goes toward the life insurance policy itself, while the remaining amount is split between the savings and investing components of the policy.

As an insurer, a guaranteed death benefit may be selected for your beneficiaries, and any payments made in excess of the cost of the insurance can be placed in a savings account that receives favorable tax treatment. You might also utilize them to boost the total amount of the death benefit you get.

How does universal life insurance work?

Universal life insurance is an insurance policy that is under permanent life insurance. The versatility offered by a universal policy is that, in addition to the fact that it incorporates life insurance protection and an investing account, makes it a product with a distinct competitive advantage.

A cash value is associated with the investing component of your universal life insurance policy. The cash value is the amount that is contributed to your savings and investments from the time you acquire your insurance policy until the time you pay out the policy. 

So whenever you pay your monthly insurance premiums your insurer will put part of the money you pay toward your insurance. The other part will go toward your investment. You have various options for how to invest the money in the account that is associated with your universal life insurance policy.

Your insurer could provide you with a variety of alternatives for market funds or interest-earning investments. Generally speaking, your universal life insurance investments qualify for tax breaks.

universal life insurance comparewise 2

If you have a universal insurance policy, the flexibility of the policy may enable you to make adjustments to your rates. However, this depends on the insurer you choose.

As time passes, you can evaluate your current premiums in conjunction with your circumstances and decide whether you would want to raise or reduce your payments.

You should be aware that the value of your assets may go up or down depending on how well your investments do when you buy them via your universal life insurance policy.

The financial markets are very unpredictable, so when you acquire investment assets, you run the risk of either losing money or seeing returns on your investment.

Types of universal life insurance

There are several variations of universal life insurance available to select from. They all provide lifetime protection, although their structures and investment plans vary. Your particular requirements and priorities in terms of your finances will determine the kind of coverage that is most suitable for you. 

Below are the types of Universal Life Insurance:

Traditional universal life insurance

The traditional universal life insurance policy is the kind of universal life insurance that is easiest to understand and most reasonable in price.

You are provided with a cash value savings account, adjustable premiums, and the possibility to get a death benefit. Although, the policy may become invalid if you make any modifications.

Traditional universal life insurance might be a smart choice for you if you’re trying to save costs on your monthly payments. Even so, you will be responsible for ensuring that any changes you make will not result in the policy being canceled because you failed to pay the required premiums to keep it active.

Guaranteed universal life insurance 

This type of insurance policy allows you to have a universal life policy with very little to no cash value. This type of universal life insurance can be provided as a means to get the most affordable premium payment feasible for universal life coverage.

This type of policy is similar to a life insurance policy. Even more interesting is the fact that when the cash value component of this policy is removed, the insurance plan ends up being even closer to that of a term life insurance policy.

However, term life insurance will likely continue to be a far more cost-effective alternative.

Indexed universal life insurance 

With indexed universal life insurance, you may increase the rate at which your cash value grows by investing it in a market index fund. This gives you more flexibility in how you manage your finances.

The main distinction between index universal life insurance products and traditional universal life insurance is the investment growth. Traditional universal life insurance usually offers a low-interest rate and gradually builds up its cash value throughout the insurance policy.

An indexed life insurance is what you get if they provide index funds. There are, however, many additional investing possibilities, such as stocks, shares, bonds, and so forth. The investment growth in indexed universal life insurance is based on the performance of an index, for example, the S&P 500.

With these plans, your cash value could be partly invested in a fixed-rate investment account with reduced risk and partially in a higher-risk account that is related to an index’s performance.

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Variable universal life insurance

Variable universal life insurance, much like an indexed universal life policy, may accelerate the accumulation of cash value via the use of investments. The cash value of variable universal life plans may be invested in indexes, money market accounts, or equities, giving the policyholder more freedom.

Investments may also be diversified, which enables quicker development; however, there is often a limit to the amount of money that can be gained through this strategy.

The investment funds will have management costs attached to them, so it’s a good idea to thoroughly research expenses to ensure they don’t eat into your earnings.

As with indexed universal life insurance policy, variable universal life insurance policy should only be considered by the most knowledgeable investors. This is due to the fact that the variable universal life product has the highest risk of the policy being canceled.

How to get Canadian universal life insurance

The following are ways through which you can purchase an insurance company;

Direct contact with the insurance company

An insurance company is a business that deals in the packaging, selling, underwriting, and binding of insurance policies. This kind of organization is also known as a provider, insurer, or carrier.

In addition, they are the organization responsible for handling claims and making payments. You can acquire insurance from an insurer by physically going to their office or purchasing a policy via the Internet.

Through an insurance broker

A person or corporation who offers the services of multiple different insurance companies is referred to as an insurance broker. A broker’s primary role is not to represent any particular insurance company or firm; they serve as an intermediary between their customers and the whole insurance market.

Insurance brokers collaborate with individual customers to assist them in locating, evaluating, and contrasting insurance products from a number of different providers. But, they do not participate in the underwriting, binding, or any other aspect of the policy sales process.

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Through an insurance agent

An insurance agent is a qualified professional who is licensed to offer several types of insurance policies to customers.

They have the option of working as a captive agent, which indicates that they represent only one insurance provider, or they may work as an independent agent, which indicates that they may work with more than one insurance provider.

Tips on what to consider while shopping for insurance

Calculate the type of coverage you need

A number of different aspects, such as your individual and family income, the requirements of your dependents or potential beneficiaries, and your long-term monetary objectives, determine the quantity of life insurance coverage you need.

Even after your demise, the money from the universal life insurance policy may still be put to use to support your surviving spouse, children, and any other dependents.

Your insurance policy ought to assist in covering their day-to-day living expenditures, educational fees, financial commitments, burial preparations, mortgage, and any other costs that may arise.

When confused about how you can estimate the coverage, you may use a life insurance calculator. The calculator helps you to obtain a rough idea of the premiums you could have to pay for the amount of universal life insurance coverage you need.

Research the type of universal life insurance that is suitable for you

Since there are many different kinds of universal life insurance plans, you need to do your homework and make sure you fully understand each one. In addition, check to see whether the insurance company you want to choose provides that particular kind of coverage.

Have a look around

Before committing to a new insurance plan, it is in your best interest to research several providers and evaluate their coverage and cost offerings.

Talk to a number of different insurance companies or insurance brokers to get a variety of points of view and choose the kind of insurance protection that will serve you and your family the best.

You may receive a quotation for life insurance online from certain companies, or you can chat with an adviser to get a quote that is tailored to your specific needs.

Insurers will require you to supply personal information in order to offer you an insurance estimate. This information may include your health and medical history, the health history of your family, your age, your current health issues, your health habits, and your coverage expectations.

Check the current ratings for the companies

After researching and deciding on the insurance provider you want to work with, the next step is to look into the provider’s rating in the industry. Examining the rating will provide you with more accurate information.

Numerous organizations that are not affiliated with one another provide ratings to insurance firms based on their financial stability, often known as their capacity to pay out claims.

Reviewing ratings from at least two of the most well-known rating organizations is a crucial step before purchasing insurance. You should take this step at the earliest opportunity.

Customer reviews

You may learn a lot about a company’s financial stability from its official ratings, but the personal experiences of others can be just as instructive. 

You may learn a lot about an insurance provider and determine whether their services fit your needs by reading reviews written by current and former policyholders. This also helps you narrow your options until you find the perfect one.

License

For an insurance company and an insurance agent to sell insurance legally in your province, they must have licenses. You should be able to get this information from any agency or carrier that has a good reputation.

If you are not satisfied, you may also check with the Department of Finance or another regulating body in your state that is responsible for the regulation of insurers.

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How much coverage do you need for your universal life insurance policy?

Your unique circumstances will dictate the kind and amount of life insurance coverage that is appropriate for you. The insurer will want specific information and documentation, such as a copy of your medical history.

As a policyholder, the information you provide will be used to calculate how much you will be responsible for in terms of your insurance coverage.

The following are factors that determine the cost of your insurance policy;

Assets

The amount of universal life insurance coverage you need may be influenced by the assets in your other investment accounts.

You could come to the conclusion that you do not need a universal life insurance policy if you have sufficient assets in your tax-free savings account, registered retirement savings plan (RRSP)  or any other investment account.

Health status

Your state of health may also be a factor in determining how much coverage you require. The coverage you need depends on various factors, including age, gender, current health, past health record, life expectancy, and family medical history.

Occupation

Another factor that can determine your universal life insurance policy is your occupation. Your insurance premiums could be more expensive if you work in a hazardous environment.

Gains accruing from job employment

When you begin a new job, you need to enquire if there are life insurance policies that come with the package. So before you begin the search for a suitable life insurance policy for yourself,  check with your employer to determine how much coverage you already have through your job. 

However, if you go with the policy that your company offers, you run the danger of not having life insurance after you’ve left that employment. Also, there is a possibility that you will go through a period in which your life insurance policy does not cover you.

This is because some employers insist on a waiting period before they begin providing benefits to their employees.

Who benefits most from obtaining universal life insurance

Since universal life insurance premiums are often relatively high and the policy may be challenging to comprehend, there are better options than this kind of coverage for most individuals. 

A universal life insurance plan may be an excellent choice for the following types of customers:

  • Those who are younger have a very high salary, don’t need the money for decades, and are able to take on greater risk.
  • People in higher income tax brackets who have already contributed the most they can to their TFSAs and RRSPs and who wish to ensure that their heirs get tax-free distributions of their inheritances.

Apart from those specific groups of individuals, an individual who desires the following could find that a universal life insurance policy is a useful option for them:

  •  A cash value that is available during the duration of the insurance and may be used for withdrawals or loans.
  • Ability to minimize the tax pay while maximizing the money you pass on to your descendants.
  • Make a charitable bequest in your name to the organization(s) of your choice.
  • Insurance coverage that is long-lasting and permanent.
  • The ability to make changes to both premiums and death benefits as needed at any time.
  • The ability to direct where the investment part is put to use.

Who are the people that can benefit directly from your universal life insurance policy?

When you purchase universal insurance coverage, you are given the option of choosing who will be given the payout from your insurance protection in the event of your passing.

Your insurance company could also let you buy a joint universal life insurance policy for you and your husband, common-law partner, or other family members.

With a joint insurance policy, you can protect everyone in your family from financial hardship. It is essential to note that the cost and coverage policy of single universal life insurance will be different from that of joint life insurance.

Advantages of universal life insurance

Lifelong coverage

Your universal life insurance policy, which is a kind of permanent insurance, will continue to be in effect as long as you pay the premiums when due.

Flexibility

Universal life insurance provides long-term protection at more affordable and versatile rates than those whole-life policies. You also have the ability to make changes to the coverage level and the premium payments over time, giving you flexibility as the circumstances of your life or income vary.

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An adjustable death benefit

If you want to raise the value of your death benefit, your policy could let you, but doing so might require you to have a medical checkup beforehand. There is also the possibility of decreasing the death benefit amount to bring down the cost of the premiums.

Increased cash value

A universal life insurance policy, much like other types of permanent life insurance, has the potential to build up cash value in a financial vehicle comparable to a savings account.

When you make a payment toward your insurance policy’s premiums, a part of the money you pay is deposited into an account that reflects your policy’s cash value.

The cash value accrues interest at a rate that is either the market rate at the time or the minimum interest rate specified in the policy. Policyholders can take out loans or make partial withdrawals from the cash value as it grows throughout their insurance plan.

Investing In a favorable tax treatment

Your insurance is purchased as part of your payment, and the remaining balance accumulates interest exempt from taxation as long as it is maintained in your policy.

The value of the investment account that is included in your universal life insurance plan has the potential to grow during your policy’s duration as your other assets also increase in value.

If this occurs to you and you do not get any payments from the account other than your premiums, you may be exempt from paying taxes on the gains in your investment.

Disadvantages of universal life insurance

The following are the disadvantages of universal life insurance policies:

The premiums may come at a high cost

Most people do not have the money needed to get universal life insurance. Universal life insurance often has a high premium to pay upfront, which may make it difficult for policyholders to maintain timely payments and retain their coverage.

Since it is flexible, if your investments see a decline in value over a period,  your payments may need to be increased, and the amount you get from your insurance payment may be reduced.

It takes time to build up monetary value

When it comes to universal life insurance, the cash value is one of the elements that the majority of people are acquainted with, although it takes some time to build up.

It is a brilliant idea to have a clear image of how much time will pass before you are able to cash in on your life insurance policy or borrow money against it in the event of an emergency.

In addition, it is essential to monitor the development of your cash value and to make regular requests for illustrations from your insurance provider if you want to be sure that you are obtaining the best results possible.

The cost of your insurance increases if you do not go through this exercise of reviewing your investment and making any necessary changes.

Cash value

Unless otherwise specified in the contract, the cash value money is exclusively accessible to the policyholder. Because of this, the cash value of your insurance policy will only be helpful to you when you use it. 

Your beneficiaries will not get the money directly. They can enjoy it if you use the cash value for a loan, withdrawal, insurance cancellation, or premium increase before you pass away.

Your insurance company will be the one to retain the cash value, which will include a portion of the premiums you have paid over the years.

Negative investment returns

If you don’t have a no-lapse guarantee, your universal life insurance policy will expire as soon as the cash value is no longer sufficient to pay the premiums.

Because the market may go against you, and certain plans enable the insurance provider to use the cash value to cover losses, you should proceed with caution.

Worse, if you don’t pay the difference in death benefit premiums when your cash value reaches zero, your policy may expire with no value.

Tips on how to keep your insurance coverage in good shape

You owe it to yourself as a policyholder to have a complete understanding of your choices. Even if you are in a difficult financial position, this will ensure that your insurance coverage does not become invalid. After an insurance policy lapses, it becomes null and cannot be used.

  • Pay your insurance premiums on time.
  • Establish a mechanism for automated billing.
  • Update all of your contact information to make it easier for you to get reminders.

Universal life insurance vs. term life insurance

Despite their similarities, term life insurance and whole life insurance have significant functional and financial differences. Universal life insurance policy is a kind of permanent life insurance that includes additional features, such as a cash value component, investment options, and tax deferral.

These additional features make it seem like you’ll have more coverage, but keep in mind that you may never use them.

On the other hand, term life insurance provides financial protection for a specific period, such as when you have financial responsibilities to a spouse, children, or elderly parents. To ensure you’re covered for as long as you need, you may choose a term length between 10 and 20 years.

In term life insurance, you can reduce your level of protection as your requirements change. Only a few individuals have term life coverage requirements that remain constant throughout their lives.

When it comes to affordability, term life insurance premiums are far more manageable, allowing you to get a policy with a more considerable death benefit.

However, the premiums for universal life insurance policies are typically much higher than those for other types of policies, making it difficult for some people to keep up with the payments over a lengthy period.

Universal life insurance vs. whole life insurance

There are two primary kinds of permanent life insurance; whole life insurance and universal life insurance. These insurance policies protect you for the rest of your life and provide rewards to your dependents in the event of your passing.

The key distinctions between the two kinds of insurance are found in the premium structures and the cash management practices that are used for investment accounts.

In Whole life insurance, the premiums that you pay are fixed and do not fluctuate at any point during your insurance coverage. In contrast, the rates for universal life insurance are subject to change based on the cash value of the policy.

In order to maintain your current level of insurance coverage, you could be required to pay higher rates.

When it comes to cash value, whole life insurance provides a minimum cash value guarantee, which results in high premiums.

On the other hand, Universal life insurance does not give a guaranteed monetary value. Your investment portfolio might have an effect on the amount of fluctuation that occurs in your cash value.

Other types of insurance

Life Insurance in AlbertaLife Insurance in British ColumbiaLife Insurance in ManitobaLife Insurance in New Brunswick
Life Insurance in Newfoundland and LabradorLife Insurance in Nova ScotiaLife Insurance in OntarioLife Insurance in Prince Edward Island
Life Insurance in QuebecLife Insurance in Saskatchewan

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FAQs about universal life insurance

What is universal life insurance?

Universal life insurance is a kind of insurance policy that includes a cash value component and provides lifelong coverage as long as the policyholder continues to pay the required premiums. Your universal life insurance policy premiums may be adjusted higher or lower within certain restrictions. This type of permanent life insurance coverage can be more cost-effective than whole life insurance coverage.  

What happens if I stop paying for my universal life insurance?

There are a few potential outcomes that can occur if you do not maintain continuous coverage under your universal life insurance policy. Firstly, the outstanding premiums needed to keep the insurance active may be deducted from the cash value in your account. This can be done if the insurance plan has sufficient financial value. Although, this method can only let you stay covered temporarily. In the event that you have exhausted your cash value accumulation and used up all cash value to pay your premiums, you will no longer be covered by insurance.

Can I cancel my universal life insurance policy deliberately?

Yes, you are free to terminate your coverage if you intend not to continue to pay your monthly payments. You will be given what is known as the cash surrender value, which is the same as the cash value that is still there in the account. However,  in most cases, you will be required to pay surrender costs, which may be thought of as a penalty for canceling your policy. You may also be required to pay income tax on any money you get in the tax year in which you cancel your policy.

How many years of coverage do I receive when I get a universal life insurance policy?

The term "universal life insurance " refers to permanent life coverage. In contrast to term life insurance policies that only cover you for a certain period, permanent life insurance provides coverage for your whole life as long as you maintain your premium payments. Despite this, it is essential to be aware that some insurance companies provide universal life insurance plans for up to a particular age for their customers. Hence, before you sign up, you should ensure that you have done the necessary research.  

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