Universal Life Insurance
The difference between Universal life and Whole Life is its flexible. You can change your premium. You can pay more one month or less the next. Sometimes when you face money problems, you can even skip a few payments as long as the cash value inside the policy is enough to pay for the COI.
You can adjust the your death benefit to fit with the life-changing conditions. The interests on the cash value may also be sensitive to the market conditions. That allows insurance companies to adjust the interest rate to give higher or lower rates if necessary.
Under the current Canada Revenue Agency (CRA) guidelines, insurance policies receive many favourable tax advantages.
You do not pay taxes on the gains in the policy. Tax is deferred until you decide to surrender the policy, the policy has lapsed, or when certain distributions occur.
Besides the withdrawls, you can take more money out of the policy in excess of your basis ( your paid premiums) through tax-free loans with a very low net effective rate.
Should the insured die, the entire death benefit including the cash value is income-tax free to the beneficiary.
When cash value in the policy is sufficient, premiums paid into the a policy can be taken as tax-free withdrawals up to the your costs basis in the policy. The is the premium you paid with after-tax dollars.
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Additionally, Uls maybe a useful tool in implementing some tax and or estate strategies, may allow for changes to the death benefit, and may allow some flexibility in the timing of premium payments.
ULs also tend to be more transparent, in that the different fees are the COI are broken out.
No matter what you call it, all insurance has one thing in common. You have to pay for the COI inside the policy, which is the cost of term insurance.
We can sum it up as follows:
- All insurance is term insurance ( COI)
- The costs of term insurance always goes up
- There is no free lunch. You have to pay for it
In other words, all insurance is either term or term plus cash. The COI always goes up as you get older.
You must pay for the term insurance directly, or you must have enough money in the cash value to pay for it.