Insights, Tools and Tips
Only the most interesting and useful items that cross our desk each month.
Universal Life Insurance is the very most flexible type of permanent life insurance. A Universal policy has two components – the pure cost of permanent insurance or minimum premium and a tax sheltered investment account.
The minimum premium must be paid every month or year but the policyholder has the flexibility to invest extra premiums in a tax sheltered account.
The accumulated funds in the investment account can be used in different ways… very flexible.
A policy holder could stop paying in later years and let the investment account cover the pure cost of insurance. The policy owner could use the side account as a wealth transfer mechanism to grow an inheritance that would be paid to a beneficiary tax free.
The most important part of all is the flexibility of the policy holder to choose how much to invest and when. You have a choice of investment options to invest in, including guaranteed investments, bond funds, balanced funds and equity funds. There is also the flexibility to not invest any extra money and simply pay the minimum life insurance premium.
Investments into a Universal Life insurance policy are not a tax deduction but the investment account grows tax free – the other side of this coin is that an investment loss would not be deductible.
A Universal Life insurance policy may be attractive to individuals who max out their RRSP and TFSA contribution room and could use another method of tax deferred growth for their investments.
Permanent insurance is a very good wealth transfer tool for business owners. If the policy owner does not need the investment component during their lifetime, it can be allowed to accumulate and then paid out virtually tax free to the beneficiaries.
If the benefit is paid directly to the beneficiary, probate and executor fees are avoided.
Call us at 1.888.498.5288 to see if one of these strategies will work for you.