Drawbacks and Benefits of Universal Life Insurance

Universal life insurance may well be the least known insurance available. Unless you are an insurance agent or a financial adviser, the topic probably has not come up too often in conversations.

Drawbacks and Benefits of Universal Life Insurance

You see hundreds of television commercials about term life insurance and whole life coverage, but you do not hear much about a universal policy.

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Why is This Kind of Insurance Never Talked About?

Is it such a bad option that no one wants to talk about the benefits of universal life insurance?

Maybe you should choose an equity indexed universal life insurance policy? This is similar to regular universal life, but offers a few different options.

A professional insurance agent will be able to answer these questions, but doing your own research is the best way to arm yourself with the knowledge you need to make an informed decision.

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Benefits of Universal Life Insurance

Also, many insurance agents try to push term life insurance policies and may not offer you a universal policy unless you specifically ask.

What is Universal Life?

The benefits of universal life insurance make this a very attractive option, but only if you know it exists. Many Canadians still do not know this type insurance is available, never mind what it could mean to their future.

A universal life insurance Canada policy may be the safest investment you ever make. You control the amount of money you earn. That's right. Money you earn from your life insurance policy.

The earnings are tax free and deposited right into your special savings account every month. The money accrues interest and increases your net worth.

A universal life insurance policy consists of four main parts.

Mortality Cost

With a universal policy, you are told how much of your premium goes towards the mortality cost. This is the amount that covers the death benefit. It is highly recommended that you buy a policy that does not increase your mortality cost, but keeps it level throughout your lifetime.

Administration Charges

Unlike most policies that will not tell you how much of your premium goes towards administration charges, a universal policy does. This is the amount the company charges for their services.

Charges usually range between $100 to $125 per year. In most cases you are guaranteed that these charges will never increase.

Investment or Savings

After the mortality costs and administration charges are subtracted from the premiums you pay, the remainder becomes your cash value. This amount is set aside and used by the company to make investments.

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The funds grow and earn interest. You may withdraw or borrow this amount if you need to.

Options for Returns on Investment and Savings

The interest earned in your cash value fund is credited back to this fund and interest is compounded.

Drawbacks and Benefits of Universal Life Insurance

Some companies offer a guaranteed minimum return. That means that no matter where the money is invested, or how the stock market performs, you are guaranteed a return on your money.

Many companies these days will tell you where they invest the money and how they calculate the interest on your cash value amount.

Some will even provide you with options and let you decide where the money should be invested. This gives you much more control.

Universal Life is Growing in Popularity

These new changes have made universal life insurance policies more popular than ever. Of course, your policy will not give you as high a return as other investments, like mutual funds.

But the funds will grow slowly and steadily providing you with you nice little nest egg in case of emergency or a comfortable retirement income.

A universal life insurance policy gives you the benefit of life insurance coverage, plus a flexible low risk investment portfolio. With today's complicated tax laws, you need to protect your estate as much as possible.

A universal policy can provide this protection. And most plans offer a slew of investment options, various death benefit choices, a great selection of riders and other benefits, flexible payment options and a variety of ways to use your accumulated cash value.

Universal life may be a good option for you if:

  • You want life insurance coverage
  • You want to save for your retirement
  • You have maxed out your annual RRSP contribution
  • You want tax advantages to protect your estate and other assets
  • Another huge advantage a universal life policy offers is that your beneficiary not only receives the tax free death benefit, but also the accumulated cash value. A whole life insurance policy only pays the death benefit.

    This gives your loved ones additional funds to cover estate taxes, thereby preserving other assets, such as a family business.

    Seek Expert Advice

    Since a universal life insurance policy offers so many investment choices, you should seek the advice of a financial adviser or insurance agent experienced in these complexities to choose the best options for your particular needs and financial goals.

    Contact Us For a FREE Consultation

    We're waiting to help you! Click here to ask any question. We'll contact you with your answer, or to make an appointment, free of charge.

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