Universal life insurance: flexible permanent cover that can grow
Universal life combines lifelong protection with a tax sheltered investment account inside the policy. You choose how to invest and can adjust your premiums, which makes it popular with business owners and higher income families.
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Everything to know about universal life insurance
Who it is for
- People who want permanent cover with flexibility
- Higher income earners who have used their RRSP and TFSA room
- Business owners and professionals planning an estate
- Anyone who wants to choose how the policy account is invested
How it works
- Your premium pays the cost of insurance and the rest goes into an investment account inside the policy
- You choose from available investment options, some guaranteed and some market linked
- Growth inside the policy can be tax sheltered, subject to the tax rules
- You can often adjust premiums and cover as your life changes, within the plan limits
What affects the cost
- Your age, health and cover amount
- The mix of insurance cost and deposits
- Fees and charges in the contract
- Investment returns, which are not guaranteed on market linked options
Common mistakes to avoid
- Underfunding the policy so the account cannot cover rising insurance costs
- Assuming investment growth is guaranteed
- Not reviewing the policy every year
- Ignoring the limits on tax sheltered deposits
A 45 year old business owner uses universal life for permanent cover and tax sheltered growth, and reviews it every year with an advisor. Illustration only, not a quote.
Questions people ask
How is universal life different from whole life?
Both are permanent. Whole life has fixed premiums and guaranteed values. Universal life is more flexible, and the policy account can be invested in different options, so values can vary.
Can the policy run out of money?
If deposits are too low and investments underperform, the account may not cover the insurance costs. That is why regular reviews matter.
Who should consider it?
Often people with strong savings habits, a long time horizon and a need for permanent cover, especially business owners and higher income earners.
How universal life works
More flexibility than whole life, and more responsibility to keep it on track.
Permanent cover
Like whole life, it can last your entire life as long as the policy has enough money in it to pay the cost of insurance.
Flexible premiums
Within limits, you can pay more in good years and less in tight ones. Extra money goes into the investment side of the policy.
Choose your investments
Options often include interest accounts and market linked funds. Returns are not guaranteed and can go up or down.
Tax sheltered growth
Money inside the policy can grow tax sheltered, up to the limits set by the Income Tax Act.
Cost of insurance styles
Some plans keep the cost low early and rise with age. Others level it out. The choice affects cash value and long term risk.
Guaranteed universal life
A low cost version focused on lifetime cover with little cash value, for people who only want a guaranteed benefit.
Who universal life suits
Best for people who want growth potential and will check in on the policy regularly.
- Business owners using a corporation to hold insurance and investments
- Higher income households who have already used RRSP and TFSA room
- People planning for estate taxes on a cottage, business or investments
- Those who want flexible funding instead of a fixed premium
- Clients comfortable with investment risk and a yearly review
Term, whole and universal life compared
The three main types of life insurance, side by side.
| Term life | Whole life | Universal life | |
|---|---|---|---|
| Coverage period | Fixed term: 10, 20, 30 or 40 years | Your whole life | Your whole life (if the policy stays funded) |
| Premium cost | Lowest to start | Highest, but fixed | Flexible, between term and whole |
| Premiums | Level for the term, then rise on renewal | Guaranteed, can be limited to 10 or 20 years | Can be raised or lowered within limits |
| Cash value | None | Guaranteed, builds every year | Grows with the investments you choose, not guaranteed |
| Best for | Mortgage, children, income replacement | Estate planning, legacy, lifelong cover | Tax sheltered growth, business and estate planning |
| Main trade off | Cover ends if you outlive the term | Costs more and grows slowly | Needs monitoring, underfunding can lapse the policy |
General guide only. Features, guarantees and pricing differ by insurer and policy. Ask me for a side by side quote from several companies.
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Questions people ask
What is the difference between whole and universal life?
Whole life has fixed premiums and guaranteed cash value. Universal life is flexible: you choose the investments and adjust the premium, but the cash value depends on returns and is not guaranteed.
Can a universal life policy lapse?
Yes. If the account value is too low to pay the cost of insurance, the policy can lapse unless you add money. A yearly review and a sensible funding level keep it safe.
Is the growth really tax sheltered?
Growth inside an exempt policy is sheltered while it stays in the policy, and the death benefit is generally tax free. Withdrawals and loans can be taxable, so they need planning.
Is universal life good for business owners?
Often yes. A corporation can own the policy, and the tax free death benefit can flow to shareholders through the capital dividend account. I work with your accountant to structure it.
Should I choose it over an RRSP or TFSA?
Usually not first. Registered accounts are more cost efficient for most people. Universal life fits once those are used, or when lifetime cover is also needed.
Is universal life right for you?
A free, no pressure conversation. I compare several insurers so you see real options.
Book a free consultationCall 306-472-2020This page is general information, not personal advice. Product features, eligibility, guarantees and pricing vary by insurer and policy, and are set out in the policy contract. MS Insurance Inc. is licensed to sell life and health insurance in AB, SK, BC, NB, NS, QC, MB, ON and PEI.