Determining the cost of Universal Life Insurance is much the same as other types of insurance, with some additional unique factors that only pertain to UL. Like term and other permanent options, your age, health, coverage amount and any additional riders will affect the cost of your insurance. Where universal life differs, is in the flexibility of the payments that can be made into a UL policy. Each universal life policy considers all of the previously mentioned factors, but the actual amount of premiums that you will be required to contribute won’t be an exact amount – instead there is a minimum and maximum amount you can deposit in any given month. The minimum amount of premium would just cover the cost of insurance without having any extra leftover in the investment component of the policy. You may choose to have your insurance cost remain level throughout the entire existence of the policy, or you can choose to start with a lower premium that will increase over time. Your selection will affect the premiums. You also have the option to deposit higher amounts of dollars into the policy, up to the maximum calculated. This maximum contribution ensures that the investments within your policy will remain tax-sheltered.
In relation to the other forms of life insurance, universal life insurance generally falls between term insurance and whole life insurance in terms of cost. It provides permanent coverage, but at a lower cost than whole life insurance, however, there are more complexities and a focus on a more hands-on approach.
Universal life insurance coverage is a helpful tool for people with specific needs. Some of the most common reasons for purchasing a universal life insurance policy are:
Flexibility of payments.
If you have variable income or expenses like a salesperson, business owner, or anyone being paid commission, the flexibility of payments allows you to add more to your policy in higher income months, and decrease it in lower income months
Permanent coverage at a more affordable premium.
If you are looking for coverage for life at a less expensive premium than whole life insurance, a universal life policy with minimum premium payments is an appropriate option.
You want customization and control over your investments.
Universal life allows you to select the investments that are held in your policy. If you want to have control over your investments with tax-deferred growth, a UL policy will meet that need.
Your RRSP & TFSA accounts are maxed out.
Both whole life and universal life policies allow your investments to grow tax-deferred, so if you no longer have contribution room in your TFSA or RRSP accounts, you can use a UL policy to reduce some of your taxes
Universal life insurance isn’t the right choice for everyone, many people will find that term life insurance covers many of their needs earlier in their life, and whole life insurance may be more appealing later in life as it doesn’t require active management. However, for certain people, universal life can be exactly what they are looking for – flexibility, choice of investments and more affordable permanent insurance. In many situations, a combination of both term and permanent insurance will provide the protection you need today and in the future. Our team at Hometown Life Insurance is happy to work with you to develop your personal insurance strategy, and answer any questions you may have.