Universal Life Insurance

What is Universal Life Insurance?

Universal life insurance is a form of permanent life insurance with some flexibility. Typically it offers flexible amounts of coverage, flexible coverage periods and flexible premiums. With a universal life policy, the death benefit can be increased over time based on a certain set percentage. The indexed amount can be based on Consumer Price Index (CPI) or can be a set percentage chosen by the policy holder.

This policy contract offers a choice of yearly renewable term (YRT) costs or level cost of insurance (LCOI). The policy owner can choose a level amount equal to the face amount of the policy or the face amount plus the cash value that has accumulated under the policy.

The most flexible component of a universal life policy is the alternatives available for the investment of premium contributions beyond what is used to cover the cost of insurance. This amount forms the cash value of the policy.

Some universal life insurance contracts allow the owner to choose how the cash value component will be invested. The choices available can be a Guaranteed Investment Certificate (GIC), money market account, an index fund investment or a segregated fund investment.

Universal Life Insurance Options

A universal life insurance policy owner has some choices on the terms of the contract.

1. Policy loan
   • The policy may allow the policy holder to take a loan against the accumulated cash value.
     If the insured dies while there is still a loan outstanding on the policy, the amount of the loan plus the interest owing will be deducted from the amount of the death benefit paid to the beneficiary.
2. Withdraw cash value
   • The policy owner may also withdraw a portion of the cash value accumulated under the policy.
     In this case, the owner of the policy may settle for a different plan or replace the amount withdrawn plus interest to achieve the same objectives while the policy was purchased.
3. Leverage
   • The owner of a universal policy may withdraw the cash value and place it in other forms of investments.
     The policy owner may benefit if these investments generate a higher return than the investment account in the universal life policy.