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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. UL policies are unique in that, subject to an insurability requirement, they allow the policyowner to:

  • increase or decrease the face amount of insurance
  • add additional lives insured
  • substitute one life insured for another

    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.

    The Income Tax Act stipulates that the growth of an "exempt" life insurance policy reserve is tax-deferred until cashed-in by the policyowner. If the life insured dies before the policy is cancelled, the death benefits are paid tax-free to the beneficiary. That is, the deferred tax is never paid.

    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:
    What are the Advantages and Disadvantages of Universal Life?
    A universal life insurance policy consists of three basic elements:
  • an investment account
  • life insurance
  • the cost of administration

    Universal life has unbundled these elements. In other words, each of the elements is priced separately and can be changed without directly impacting the other factors. For example, it is possible for the policyowner to increase the amount of insurance coverage (thereby increasing the mortality costs within the policy) without causing a corresponding increase in premium deposits. Similarly, the policyowner could withdraw some of the cash from the policy without having to cancel the policy or pay interest on a loan.

    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.

    Consequently, the cost of insurance in a universal life policy can be as little as half of the cost of permanent insurance, which is paid for with after-tax dollars. The premium paid for universal life can be flexible, provided that enough money remains in the investment account to fund the mortality costs 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

    What are the Advantages and Disadvantages of Universal Life?

  • UL takes maximum advantage of preferential tax treatment of life insurance policies.
  • The insured can build a significant investment portfolio that includes tax-deferred income.
  • Tax-deferred investments can be totally or partially withdrawn at any time.
  • At death the total value of the investment account will be paid tax free to the beneficiary, in addition to the life insurance benefit.
  • The mortality charges and administration costs will be paid from untaxed investment income. The insured accepts the risks that future investment returns may be inadequate to fund the cost of insurance.


  • The insured accepts the risks that future investment returns may be inadequate to fund the cost of insurance.
  • Policies that are funded with the minimum required premium are expensive relative to term-100 policies because of the extra administration costs.



    "I would gladly recommend Life Insurance Advisors to my friends or anyone who might be interested in buying life insurance. Mike personally handled my account and was especially responsive to my needs. I was equally impressed with the low cost of my insurance policy." - Alexander & Mary, Peterborough ON

    "Your service and assistance in obtaining my life insurance policy has been outstanding in every aspect." "Job well done!!  Will definitely recommend! 
    Shaun & Tanya, Etobicoke ON

    "AJ was very helpful and non-pressuring. I called him for quotes and after sending them to me, he didn't keep calling every other day to see if I would buy. AJ allowed me a lot of time to make my decision. When I did have questions, he returned my calls promptly and was very helpful. I enjoyed working with AJ on this matter." - Noel & Usha, London ON


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