As universal life products become an increasingly popular choice of consumers, it's important to be aware that these products can include a variety of different features, depending on the company you're dealing with.

It's these features that make the universal life product a highly flexible financial planning tool.

Universal life policies generally include two components: life insurance and health insurance.

An insurance component

Based on their individual situation, insureds can choose the coverage that best meets their needs from among a wide range of options. A single universal life contract enables insureds to manage their own insurance (life insurance, health insurance, mortgage insurance, etc.) and play a role in managing the insurance of their spouse, their children and even their partners.

They can also modify, add or remove coverage based on their circumstances or their changing needs. Needs can often change as a result of the insured's lifestyle and major events that occur during a person's lifetime (birth of a child, higher education, purchasing a home, retirement, critical illness, etc.).

An investment component

In addition to the two insurance components, universal life insurance also has an investment component (guaranteed investments, index-based investments, etc.) for insureds who want to save money and accumulate interest tax-free.

The investment account often requires minimum deposits, which can vary depending on the type of investment selected. The amounts accumulated in the investment account can also be withdrawn in whole or in part and used, for example, to finance a variety of projects or to cover expenses associated with reduced autonomy, critical illness or disability. But be aware that these withdrawals must conform to the conditions that apply to the types of investment selected. As a result, they may be subject to tax provisions even though, in certain cases, the withdrawals may be made tax-free.

Flexible premiums

Universal life insurance also offers flexibility with regard to premium payment. In fact, according to the terms of the contract, policyholders can choose how often they wish to pay their premiums (monthly, annually, etc.), and for how long. They can also adjust the amount of the premiums.

Moreover, insureds also have the option to pay their premiums using the savings accumulated in their policy. This enables them to keep their insurance in force and at the same time reduce their premium or stop paying premiums altogether.

Universal Life as a tax shelter

Upon the death of the insured, the insurance amount and the accumulated savings are not taxable. This money can be used to protect the inheritance by paying the taxes owing upon death, in particular those payable on capital gains or in the event that both insureds should die when their RRSPs are taxable.

Universal Life Insurance can also be used as a tax-free savings vehicle for a child or grandchild. For example, parents and grandparents can take out a Universal Life Insurance policy on their child or grandchild, then pay the maximum premium allowed under the contract and transfer the policy to the child or grandchild after age 18 without having to pay any tax.

The child or grandchild can then withdraw money gradually to pay for their education, or for any other purpose. Of course this money will be taxable upon withdrawal, but since the child or grandchild will be entitled to certain tax credits, a substantial amount can be withdrawn each year before any income tax becomes payable.

In brief

All in all, when compared with more "Traditional" life insurance products, Universal Life Insurance (also known as Financial Security Portfolio at Desjardins Financial Security) offers remarkable flexibility and the ability to meet a wide range of needs.

When the time comes to take out a universal life insurance policy, make sure it enables you to:
 

• build up your financial security gradually, based on your priorities, your financial means and your family situation;
• satisfy your various needs through its two main components, i.e. the insurance component and the investment component that enables you to save money tax-free;
• make changes as your needs and your situation evolve.
   

Questions?

To find out more about universal life insurance, feel free to contact your representative.