What is Universal Life Insurance?
Universal life insurance is another type of permanent life insurance policy. The primary attraction of the universal life (UL) policy lies with its flexibility. Universal life plans offer the policyowner complete freedom with regard to the amount, frequency, timing, and duration of deposits. The only restrictions are the maximum cash accumulation restrictions of the Income Tax Act and the need to maintain sufficient value within the contract to pay for all insurance costs and other expenses.
Universal life was designed to permit policyowners to take full advantage of the deferred taxation provisions of the Income Tax Act.
A universal life insurance policy consists of three basic elements:
1. An Investment Account
2. The cost of administration
3.Life Insurance
When a premium is paid, the money goes into an investment account where it earns income. The cost of life insurance (mortality costs) and administration are taken from the investment account. This mechanism is important because it allows untaxed (tax-deferred) investment income to be used to pay for the cost of insurance and administration.
Unlike traditional plans, where the policy account value is invested in a portfolio by the insurance company investment managers, universal life offers the policyowner the option to choose the weighting of investments within the account from a wide range of options, including:
Savings Accounts | Guaranteed Term Deposits | Funds that track specific market indices (linked accounts) | Segregated Funds and Mutual funds
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