LifeInsurance

Universal Life Insurance -- a new world of financial opportunity

You're proud of the world you�ve built -- and with good reason. It�s taken years of hard work and personal dedication to shape a career, grow a family and nourish the loving environment that encompasses it all. And you�ve also done everything you can to safeguard your world -- like ensuring basic financial protection for your loved ones through your life insurance plan.

But, now that you've reached a more financially secure point in your life, it may be time to look beyond the "fundamentals" of insurance protection to a powerful tool that will complement your overall financial picture and can provide a larger estate for your beneficiaries. That financial planning tool is universal life insurance.

Universal life insurance is one of the two most common types of permanent life insurance; the other is whole life insurance. Both cover you for as long as you live without the need for renewal, provided adequate funds are periodically deposited to the policy or are available within the policy to pay the insurance costs. But, there are significant differences in these two types of permanent coverage and, for people seeking flexibility and a degree of personal control over insurance based, tax-sheltered investment opportunities, universal life offers advantages that whole life doesn�t. Here's why:

• Universal life's flexibility allows you to change the focus of a policy as your life changes. Earlier in life, insurance protection is usually of paramount importance. Later on, when your earnings are typically higher and you may be searching for additional vehicles for sheltering investment income, you can shift a universal life policy toward investment savings.
• Universal life provides the opportunity for you to accumulate investments on a tax-sheltered basis within the policy while choosing from a wide range of investment options, including those with returns linked to the performance of equity or bond market indexes, money market accounts and guaranteed interest accounts. In other words, you get to take an active role in the investment management of your own policy -- and that�s one of the main reasons why universal life has become so popular as compared to a whole life policy. Decisions regarding the investment of the deposits to whole life insurance policies are made solely by the insurance company and usually follows a conservative path providing a portfolio of investments primarily in bonds and mortgages yielding slow steady growth with minimal volatility.
• A universal life policy can actually enhance the value of your estate. When a universal life policyholder dies, beneficiaries typically receive the face value of the life insurance as well as the accumulated value of the investments�and both amounts are paid out tax-free.
• Universal life policyholders can also access the cash value of their policy during their lifetime either through withdrawals or by borrowing against the value of the investment component. However, early withdrawals can trigger taxes (and possibly early withdrawal penalties) as well as reducing the amount available to beneficiaries upon the policyholder�s death.

Is universal life the right choice for you?

That depends. If your financial basics are in order, including whether you have eliminated all non-deductible debt and maximized your RSP contributions (that�s because universal life deposits are not deductible like RSP contributions), and you have additional money to invest, universal life can be a good estate-enhancing opportunity for you.

This page is part of the GayFinance series.