Universal Life Insurance
UNIVERSAL LIFE INSURANCE is the most flexible form of life insurance. It combines both an insurance component and tax advantaged savings component into one overall plan. Universal life allows you to change your coverage, deposits and investment choices as your life insurance needs change and evolve over time.
This means your universal life insurance can be used to do it all.
Universal life, like whole life, is a permanent form of insurance but it has a number of advantages:
- Universal life can have a level premium.
- It also allows for extra deposits.
- These extra deposits can build up. Once there is enough cash value built up you could even reduce or stop making premium deposits and let the plan self-fund itself.
- These extra deposits can be a great way to tax shelter money.
- UL gives you a variety of investment choices. Whole life insurance has the insurance company invest in conservative bonds on your behalf, while universal life allows you to invest in everything from safe money market funds to global stock funds.
- You can change your investment mix at any time.
- These tax sheltered investments can help provide a tax free income stream in retirement.
Universal Life Insurance can be a great fit for:
FAMILIES: Families can start off by insuring their incomes, and then increase their insurance amounts to cover their debt, mortgage and child educational plans. Later they can drop some of that coverage as those liabilities and needs disappear. They also have the opportunity to tax shelter investments for retirement. Universal Life also provides that at death, there will always be tax free money for the estate taxes, costs, and beneficiaries.
Many families have significant liabilities to cover at death. Insurance will help maintain the value of the estate by offsetting those expenses, more importantly, insurance money can be used to help divide up estate assets fairly.
Universal life insurance can help stop family members from fighting and lawsuits. For example, take a look at two adult children who stand to inherit from their parents who both just passed away. One is bequeathed the $500,000 cottage and $1,000,000 family business, while the other is bequeathed the remainder of the estate’s assets which include $500,000 taxable investments and $1,000,000 in RRSPs.
Will there be a fair split between the two beneficiaries? Not likely, because while one adult child gets the cottage and family business outright, the other gets the remainder of the estate. But all the taxes, fees, and costs will be paid out of the remainder portion. So any capital gains from the cottage, business, and taxable investments will reduce the amount. All RRSPs will be taxable too, and mostly at the highest taxable rate. Therefore the second beneficiary will be getting much less than expected. However, life insurance can be used to cover all these costs, and any remaining life insurance proceeds can be divided up fairly.
So remember insurance can be the ‘Great Equalizer’ to help families keep it fair and avoid tearing the family apart with in-fighting and lawsuits.
RETIREMENT: The tax advantaged savings account can be built up to provide assets at retirement. There are ways of withdrawing these assets without tax or causing a claw back of other government benefits.
ESTATE PLANNING: There are many effective ways to structure your affairs with life insurance.
For example, there are times when a person wants to pass family assets down to the following generations, like a cottage or a business. Those assets might have accumulated significant tax liabilities that have to be paid at death and sometimes the only way of paying that bill is to sell the asset itself.
Life insurance is a great way to pay that tax bill at the exact time that bill comes due. That way the cottage and /or the family business can stay in the family.
BUSINESS: Universal life can be used for any and all of the many needs of the business:
> Key Person Insurance
> Funding Buy-Sell Agreements
> Tax Sheltered Investing
> Retirement Packages
Be Careful: Of selecting investments that are tied to the stock markets.
Be Very Careful: When deciding whether to use an Increasing Cost of Insurance instead of choosing a Level Cost of Insurance.
Tip 1: Top up the maximum amount allowable in the first seven years to increase your tax sheltered advantage.
Tip 2: Use universal life insurance to pass assets to your grandchildren tax free.
Tip 3: At times life insurance can provide some creditor protection.