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Universal Life Insurance
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Universal life insurance policy is another type of permanent life insurance that allows the option of investment and savings in addition to the life insurance component. It covers the insured during the entire span of life and expires upon passing the insured. The death benefit and the investment funds in the account (depending on the policy structure) will be paid to the beneficiaries.
There are few features with the universal life insurance that you must know:
1. Flexibility on Payment
2. Creditor Protection
3. Collateral Loan Option
4. Choose between Level Death Benefit versus Increasing Death Benefit option
5. Choose between Level and ART/YRT cost of insurance
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What is Universal Life Insurance in Canada?
Universal life insurance is another type of permanent life insurance that allows the option of investment and savings in addition to the life insurance component. Much like other insurance products, it provides the insured the death benefit coverage that will be paid to the designated beneficiaries, tax-free, upon passing of the insured. The investment portion of the insurance can be invested in various shapes and forms such as guaranteed income funds, portfolios and so on.
This covers the insured during the entire span of life and has no expiry, unlike term life insurance. Depending on the type of universal life insurance, the funds accumulated in the investment portion of the policy can be used during the lifetime of the insured, either through direct withdrawal or collateral loan or may be paid to the beneficiaries upon passing of the insured, depending on the policy.
Key features of Universal Life Insurance?
There are few features with the universal life insurance that you must know:
1. Flexibility on Payment
Unlike other permanent life insurance products, it allows the policyholder to decrease or increase the monthly premium. There is a minimum and maximum payment that needs to be maintained but as long as the desired payment is within the range, the insured can modify the payments as he/she wishes. The policyholder also has the ability to make lump-sum payment into the policy.
2. Creditor Protection
To the extent permitted by the governing law, the benefits payable under this policy and the rights and interests in the universal life insurance policy will be exempt from seizure and from the claims of creditors. This is an important feature that makes it an attractive option for business owners and high-income earners.
3. Collateral Loan Option
The policy owner of the insurance may enter into a loan and security agreement with the insurance provider company provided that the loan amount does not exceed the maximum allowed collateral loan allowance. The interest rate applicable to the loan will be fixed-rate and the calculation might vary between different insurance companies but will usually be a better rate than an unsecured line of credit loans.
4. Choose between Level Death Benefit versus Increasing Death Benefit option
With a universal life insurance plan, the insured can choose between level vs. increasing death benefit option. With the level death benefit, the beneficiaries will receive the greater of the death benefit or the funds accumulated in the savings account but not both. On the other hand with the increasing death benefit option, the universal life insurance will be the sum of the death benefit and the funds accumulated in the investment account to the beneficiaries.
How Does Universal Life Cost of Insurance works?
To understand how universal life insurance works, individuals need to learn about COI: Cost of Insurance
There are two ways the insured will be able to select to pay the cost of insurance (COI): level COI or ART. The overall cost of insurance for the insured will be the same regardless of the type of COI when considering the cost of insurance during the entire life span of the individual; the difference lies under how the insured pays the COI.
ART stands for Annually Renewed Term (also known as Yearly Renewed Term) breaks the cost of insurance based on age and risk factors. The lower the age, the lower the cost of insurance and as the insured ages the cost of insurance increases, mainly because the chances of the insured passing away will increase. ART is a good option especially for younger demographic and enables them to be able to get permanent life insurance at a very affordable rate and allows for a quicker growth of the saving account (cash value) of the policy, especially when the insured is paying more than the minimum required premium. The level cost of insurance, on the other hand, breaks the entire cost of insurance of the insured in each premium, therefore, the premiums will be higher than ART (initially), but they will stay the same as the insured ages.
Both ART and level cost of insurance have their purpose and we won’t recommend one over the other. The decision toward which COI to choose for universal life insurance depends on the financials and goals of the proposed insured and requires a detailed analysis of the overall financial picture of each client.
What is the process of purchasing Universal Life Insurance in Canada?
Purchasing life insurance with Apluswealth advisors will take place through 3 important steps. First and foremost, we start with a needs analysis. Clients need to know how much coverage they need based on their current financial standing and purchase a universal life insurance policy that matches their needs. We ensure that our clients are not buying too much or less than the amount they truly need. This step involves reviewing the goal behind obtaining the insurance, going through the current financial standing of the family (income, liabilities, and so forth), and understanding how the needs of the client might change in the years to come. (e.g a beautiful newborn on the way or purchasing an apartment)
The second step is to review the health status of the proposed insured individuals. It is often overlooked that insurance is bought with the health condition of the client and not with money. We will go through a quick health questionnaire to understand the overall health condition of the proposed insured. This step is vital because once we know the health condition of the proposed individual, we will be able to determine the most efficient route to obtain universal life insurance coverage. While all insurance companies follow a close guideline regarding health and medical underwriting of the proposed insured individuals, there are some distinctions between how they look into some conditions versus others. We work with known and proven insurance providers and we keep ourselves up-to-date with the most current underwriting changes the providers make in their decision making. In addition, we are able to get in touch with the providers to examine how they would look at the application for the proposed insured and get a rough answer before even submitting the application. All because we care about the time of our clients and we ensure to make the process as quick and painless as possible.
The final step is to complete a policy that is designed specifically for you once we have the necessary financial and health information. Our expert advisors will simplify the process and create handpicked options that meet your needs to make your decision easy and quick. With access to the well-known insurance providers, you will be sure that your universal life insurance will be the best policy and value that you could get.
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