Universal Life Insurance in Canada
This is a very flexible type of life insurance. It is especially suitable for those who are looking for permanent coverage and looking for flexibility on the choices of death benefits, premiums, and investments. Let’s explore the following different options.
Death Benefit Options:
- Face Amount: This is the amount of payout written in the policy contract. To increase the amount, it usually requires the insured to go through medical underwriting again.
- Face Amount + Fund: One unique characteristic of the universal life insurance is the ability to accumulate fundings within the policy. The funding would be paid out together with the face amount when insured passes away. More details will be discussed in the “Fund Values” section.
- Face Amount + Return of Premium: Although not every insurance company is offering this option, for those who does, the premium may be accumulated into the death benefits.
- Year Renewal Term (YRT): The premiums are low in the early years, which makes it easier to accumulate fundings. However, the premium would increase at a very rapid pace when insured is getting older. The premium duration will be highly depended on the investment performance. If the investments performed well, policy owners might be able to shorten the duration of premium payment. On the other hand, if the investment returns are not performing as well as expected, policy owner will have to continue paying premium for a longer period, else, the policy will run into the risk of being lapsed.
- Level Cost Of Insurance (COI): The amount of premium would stay the same over time. This makes it easier to budget for the coverage.
- Level COI with Guaranteed Paid Up: This option allows the contract to be paid up in a pre-selected time frame, which means premiums will only need to be paid for certain number of years, then coverage will last for the lifetime. Many insurance companies offer the choices of 10, 15, and 20 years.
- In order to accumulate fundings within the contract, one could deposit more than the cost of insurance. The fundings can been invested, and the choices typically include GICs, saving account and index based investments. Investments within the policy could grow in a tax deferred basis, while there is limit on the amount of how much one could deposit. However, investors should be aware of the investment risks involved, the Management Expense Ratio (MER) being charged, and surrender charge might be applied if fundings are withdrawn in the early years.
For policies that can be paid up, usually there are guaranteed cash value being built-in. This is the amount of money one could get back should they decide to cancel the coverage, and the amount is guaranteed in the contract. The value would grow over time, but usually there would be very little in the early years of the policy. Another way one could access the cash value without cancelling the policy is to borrow against it, but interest charges would applied.
Beside the basic coverage, some universal life insurance plan could allow one to include other riders as well. For example riders of term insurance, critical illness insurance, disability insurance, waiver of premium and others may be available. Insurance companies may have different riders’ choices from one another.
Although universal life insurance’s flexibility is appealing to many people, one size doesn’t fit all, it is important to understand your needs and the plan’s features before applying for it.