Universal Life Insurance
Universal life (UL) insurance was designed to give the purchaser more flexibility than traditional life insurance policies. It was clear people wanted more options when it came to coverage amounts, investments and payment options. Let’s take a look at how UL attempt to accomplish this.
Like all life insurance, there is a death benefit the purchaser receives from day one. This amount is paid tax-free to the beneficiary upon the death of the life insured.
Where Universal life starts to differ is in the choice of investments. One of the major knocks on term insurance is if you pay for it and never use it, your premiums are gone forever. Permanent insurance attempts to solve this by having some sort of investments associated with the policy. When you make a payment, part of your premium is used to cover the cost of coverage where the balance of the payment goes into an investment. UL is beneficial in case you are looking for investment along with life insurance benefits.
The investment in a UL is going to be more flexible than a whole life policy. With UL you have a choice in where your investment goes. Companies today often have a range of investments they offer. It’s from this list you must make a choice on what to invest in. These investments range from conservative (cash equivalent) investments to aggressive investments including equities. Therefore, it is very important that you choose right insurance company for purchasing a UL policy. Companies such as Manulife will offer different investment choices than companies such as Sunlife.
With these investments, you can change them over the course of the policy. You can invest aggressively if you think market is growing and will do well. If you believe the market is going to slow you can move your investments into a more conservative account. This investment feature offered by UL policy attracts several Canadians.
UL, because of its flexibility is almost the most expensive life insurance policy. Part of this flexibility comes in paying premiums.
Assume for a second you purchased a Universal life policy 7 years ago. For this time period you were doing well, you had a steady job and your investments in the UL policy did well. However, in year 7 you lose your job unexpectedly. Traditional life insurance would require you to continue to pay for your policy. With UL you could use the money in your investment account to pay for your policy while you look for a new job. This way your loved ones are still protected but you are not financially stressed because of this.
This is also the sad reality for most Canadians. More and more Canadians will have gaps in their income over the years, either from being let go or seeing a decrease in their overall working hours. Insurance companies realized this and used policies such as the Universal Life policy to help people maintain their coverage without having to lose it together.
Universal life can offer a wide range of benefits when purchased for the right reasons. For any further questions or to speak with an advisor feel free to reach out to TIPS as we would be happy to help.