Universal life insurance is an increasingly popular consumer product.
Compared to other products offered by the insurance industry, it generally provides greater flexibility and caters to wider range of needs.
Although product offerings vary from company to company, we have identified the main features and described them here to help you compare.
What to Look For in Universal Life Insurance
How is Universal Life sold?
For a universal life insurance policy to live up to its name, its main feature has to be flexibility. What does that mean? A policy is flexible if, under the same contract, you can:
- Build your financial security step by step, based on your priorities, financial means, and family situation.
- Satisfy your various needs, thanks to your universal life insurance policy's two main components: insurance coverage and investment options that allow you to shelter your savings from tax.
- Make changes to your policy as your needs and situation change, at your convenience.
Acquiring universal life insurance is a lot like buying a house. You have to know your needs, plan according to your priorities, and set objectives within the scope of your current and future financial means.
For example, if you opt for a 5 room house, it will be cheaper than a 7 room house, which in turn will be cheaper than a 10 room house. You can also plan to expand your home in the future by adding a garage or solarium or finishing the basement. The furniture and accessories can also be replaced at a later date to adapt to your changing needs.
Likewise, universal life insurance is available at rates that vary from highly affordable to expensive. It all depends on the choices you make.
If you would like to learn more about Universal Life coverage, click on I'm Shopping for a Product.
Insurance coverage
Certain universal life insurance products offer a variety of life and health insurance coverage options you can choose from to best meet your needs.
Choice of coverage
- Life Insurance offering protection in the event of death. Life insurance products include temporary coverage offering terms of 1, 5, 10, 20, or some other number of years; permanent coverage with or without guaranteed cash surrender value; and mortgage insurance.
Benefits payable upon death can also be highly flexible, and may be either fixed or variable (if indexing is available in predetermined or % amounts).
To find out more about the main features of term life coverage, click on What to Look For in Term Life Insurance.
- Critical Illness Insurance to build up a reserve in the event of a serious illness.
To find out more about the main features of critical illness insurance, click on What to Look For in Critical Illness Insurance.
- Additional benefits: Companies may offer several additional benefits besides life and critical illness coverage.
To get an idea of what they can provide, consult What to Look For in Additional Benefits.
It is a good idea to ask the following questions about coverage and find out about the different terms and conditions that apply:
- Can you choose more than one of the coverage options available? For example, can you start with a 10 year term if your current budget is limited and upgrade your coverage as your financial situation improves?
- If your needs and available financial resources change, can you add or withdraw coverage at a later date?
- Is it possible to insure a number of people individually with the same or different coverage options under the same universal life insurance policy? Can insured persons be added, withdrawn, or replace during the term? What is the maximum number of persons that can be insured?
- Can you combine individual coverage and joint first-to-die or last-to-die coverage under the same contract?
- In the case of first-to-die coverage, will you be able, in the event of death, to underwrite new coverage under the same universal life policy without having to provide proof of health?
- Does the permanent life insurance coverage you are considering include guaranteed cash surrender value?
Investments
In addition to life and critical illness coverage, various investment accounts are also available that allow you to save and accumulate interest tax-free.
Minimum and maximum investment
If you go the investment account route, you will find that minimum deposits are often required, with amounts varying depending on the type of investment you choose. Maximum amounts are usually determined based on limits set in the Income Tax Act beyond which universal life insurance loses its tax-exempt status.
If you decide to save under a universal life insurance policy, it's a good idea to check the following information and the terms and conditions that apply:
- Is there an obligation to save? In the event of death, are savings payable over and above the insured amounts?
- What kind of investment accounts are available-variable-term, guaranteed investments with simple or compound interest, index-based investments, etc.?
- Is there a guaranteed minimum interest rate?
- Can you diversify your savings portfolio through different investment accounts and shift funds from one account to another whenever you wish?
- Can you start or stop saving whenever you wish or change the amount of your regular contributions?
- Can you use these savings to pay for insurance coverage?
- In the case of last-to-die coverage, can the savings be paid out at the first death?
- Is it possible to register these savings? Although it is fairly rare, some companies offer this option.
- Are there yearly investment bonuses to give an added boost to your tax-free savings? Don't just check the percentage bonus offered, but also when a bonus is applicable.
- In the event of illness or disability, can you access your savings in the form of nontaxable disability benefits?
Loan and surrender provisions
At some point in your life, you may run into situations where you need extra budgetary resources or cash flow. Find out what the companies have to offer and which conditions apply.
Surrendering savings
If you decide to withdraw your savings, when and at what frequency can the surrender be made? Can savings be withdrawn in part? What is the minimum and maximum amount you can withdraw?
Is there a surrender fee other than the market value adjustment? If so, over what period does it apply?
Borrowing against or surrendering the guaranteed cash value
If you purchase permanent life insurance coverage offering guaranteed surrender values, can these values be used to pay for your universal life insurance? If so, what is the interest rate that will apply to the loan? If you wish to obtain the surrender value, will the surrender lead to the cancellation of one or more of your insurance coverage options or have an effect on the amount insured?
Insurance costs and fees
Insurance costs and fees may vary or be evened out over time, may be guaranteed or subject to change, and may apply indefinitely or only for a given period. Check which options are available to you.
Insurance costs
Insurance costs vary depending on the type of life and critical illness coverage you choose, the number of persons covered, whether it is payable on a first-to-die or last-to-die basis, the sex of the insured person, their state of health, whether or not they are a smoker, and other factors.
- Preferred rate: Some companies offer insurance cost discounts to people in good physical condition and overall health. If you think you're in good health, it's a good idea to find out whether the company offers preferred rates. You may pay less.
Fees
- Administrative fees may include policy fees. Can these fees be paid in a single lump sum? Generally, universal life insurance also includes management fees for the various investment accounts available for savings. Is there a guaranteed maximum for these fees?
- Surrender fees: These fees often apply on a partial or total cash value surrender or on the withdrawal of coverage. If this is the case, they may be charged for a certain period. In the event of the surrender of savings, keep in mind that most institutions take into account the market value of the surrendered investments to determine the refund amount.
Payments
How to compare payments
The amount you spend on universal life insurance will vary depending on the features listed above, including the life and critical illness coverage you choose, the savings you invest, the number of years over which you make payments, and the return on your investments.
This makes it difficult to compare costs from one company to another. However, you should still make a point of asking about the minimum payment required to purchase insurance coverage with universal life.
I deserve the very best!
If you decide to acquire universal life insurance, make a point of dealing with a specialist. Given the wide range of options available, it's worth seeking professional advice on how to best customize universal life insurance for your specific needs.
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