Understanding Universal Life Insurance

Life Insurance

Universal life insurance is a permanent life insurance plan. This brochure explains the features and benefits of universal life insurance to help you decide if it’s the right insurance solution for you. 

The purpose of universal life insurance is two-fold. It provides long-term insurance protection to help safeguard the legacy you’re building for those you care about. It also gives you the opportunity to invest and build additional wealth over time, on a tax deferred basis within the same policy. You may have heard the saying: “buy term insurance and invest the difference.” Well universal life takes care of both … all in one policy.

With universal life insurance, you pay an amount of money that is deposited into one or more investment accounts. Each month, the insurance company takes out money to cover the cost of the insurance and administrative costs. The money left in the investment account earns a tax deferred return (either positive or negative) based on the performance of the investment account(s) you’ve chosen. The money within your investment account(s) is called account value.

While universal life insurance does have an investment component, you can decide to pay only the insurance and administrative costs each month and not use the investment component at all. However, if you’re saving for the future, any excess deposits that you make can grow on a tax‑advantaged basis within your policy. 

What’s unique about universal life insurance is you don’t have to pay tax on any growth in the investment 

accounts because it is part of a life insurance policy, provided your policy value does not exceed an amount prescribed under the Income Tax Act. 

If you’d like to learn more about universal life insurance and how it would apply to your unique situation, your advisor can show you an illustration for a particular product. This is a snapshot of how your policy will perform over time based on different investment assumptions. 

A company with a good illustration program will be able to show you how your policy will perform under a variety of investment conditions. 

It’s important to remember that illustrated values are not guaranteed, as there are many factors that affect interest rates that are beyond an insurance company’s control.

Protecting your life with universal life insurance

First and foremost, universal life insurance is an insurance product. It is designed to help you take care of your beneficiaries by providing them with financial support. Plus, the added advantage is that it gives you an opportunity to invest and build additional wealth over time – tax free, through the universal life investment accounts.

Your advisor can discuss the options with you and help you decide which is best for you. 

You can also choose the type of death benefit (or insurance proceeds) your policy provides. The most common options are:

Most universal life policies provide you with options and features so you can choose a policy to meet your needs. And a good universal life plan lets you change your policy as your needs change. 

Typically, the amount you pay for your insurance is structured in one of two ways: you either pay a level cost of insurance that spreads the actual cost of your coverage evenly over the life of the policy, or a yearly cost that gradually increases each year to equal the actual cost of insuring you as you grow older. These two cost structures allow you to tailor your policy to suit your specific needs. With the level structure, higher insurance costs are deducted in the

early years of your policy, resulting in slower growth of your account value. However, higher growth occurs in the later years when lower insurance costs are charged. The yearly increasing structure, on the other hand, provides higher account value early in your policy and slower growth in later years when the costs to insure you increase as you age. 

It’s also possible to get the best of both worlds because in some cases you can switch from yearly increasing to level. For example, you can start your policy with the increasing cost of insurance to build up your early values, then switch to the level option to produce greater value over the long term.

Customizing your policy with extra benefits

At Manulife, we recommend a yearly review of your insurance policy to make sure it continues to meet your changing needs. And, if your needs change, it’s good to know you have several options to change your amount of insurance or type of coverage. 

With your universal life policy, you can add “riders” or extra benefits. These extra benefits help customize your policy. Some examples include:

  • Child Protection Rider: insure your children now and their future insurability

  • Business Value Protector: protect your future business growth

  • Term Insurance Rider: provide extra temporary protection on top of your permanent insurance 

Your advisor can help explain which benefits are available and help you decide which, if any, extra benefits you need.

Investing in your future with universal life

The benefit of choosing universal life insurance is that it not only offers you quality, permanent life insurance protection, it also offers you the opportunity for tax advantaged investing. 

Most insurance companies offer customers a wide variety of investment accounts in universal life. And often, the choice of which universal life policy to choose is based on which accounts are available. 

Manulife offers a couple universal life options to choose from.

InnoVision® offers amazing flexibility and choice for your clients. This market‑leading product combines permanent life insurance and tax‑advantaged investment opportunities to provide custom‑designed solutions ideal for tax and estate planning. 

Manulife UL offers straight‑forward insurance and diversified investment options. This convenient product combines permanent life insurance and tax‑advantaged investment opportunities to help you increase your long‑term wealth and your risk tolerance. 

  • Hands-on investor? Choose, review and manage your own investments. You’ll have more than 50 best‑in‑class investment account options to choose from.

  • Hands-off investor? Let Manulife manage your investments using the Performax Gold Investment Fund Account designed to help decrease the impact of market ups and downs.

  • Hands on & hands off: Combine both investment styles for another diversification opportunity.

All of Manulife’s Managed Accounts have the power of i‑Watch or Investment Watch. This program monitors the funds and fund managers behind the Managed Accounts to give you peace of mind that the accounts available in your policy are based on the highest quality of funds and fund managers. 

For more information on the investment accounts available within Manulife’s universal life insurance solutions, talk to your advisor or visit manulife.ca/ul 

Your advisor will discuss the different insurance and investment options with you, and help find a universal life insurance solution that’s right for you. 

Easily access your account value 

Should you need access to your money, cash withdrawals are easy to make from most universal life policies. If an insured person becomes disabled, you may be able to receive a tax‑free Disability Benefit. Cash withdrawals for other reasons are subject to taxation and and in some instances market value adjustments may apply. Your advisor can provide you with more information about accessing your account value.

Put your trust in Manulife

Manulife Financial Corporation is a leading international financial services group that helps people make their decisions easier and lives better. We operate primarily as John Hancock in the United States and Manulife elsewhere. We provide financial advice, insurance, as well as wealth and asset management solutions for individuals, groups and institutions. For over 130 years, we’ve grown with Canadians, offering a range of permanent insurance solutions to meet their short and long-term needs.

This post was originally written by Manulife (The Manufacturers Life Insurance Company)

Ready to take a look at your finances? Book a meeting with one of our heroes today to get started!

Recent Posts

Social Media

Contact Us