 Policy Control
Universal life offers considerable control and flexibility by enabling the policy
owner to select and change premium amounts, premium payment periods and investment
options.
Tax-Free Payout of Death Benefits to Beneficiaries
Naming an appropriate beneficiary may make the cash value of your policy and its
death benefit proceeds exempt from creditors’ claims.
Wealth Management
As touted by national accounting firms, proper financial planning combined with
a universal life policy can significantly further estate and investment planning
objectives. Through your policy, you can control the investments (TSX, Bonds,
Seg Funds and so on) in your own selected portfolio, and see detailed illustrations
of where your funds go.
Lower Fees
The universal life approach may provide an opportunity to reduce or eliminate
probate fees.
Deferred Income Tax
Few investment vehicles other than conventional RRSPs and universal life allow
you to defer your income tax savings while you maintain access to equity markets
and maximize returns. Unlike RRSP contributions, which are made with before-tax
dollars, insurance premiums are not deductible. In both cases, income earned is
tax-deferred until the policy’s maturity.
Funds withdrawn from your policy during your lifetime are taxable to the extent
that the amount withdrawn exceeds its adjusted cost base. On death, however, the
entire amount (that is, the original insurance amount plus the accumulated cash
value) is received tax-free as a death benefit. Alternatively, funds withdrawn
may be treated as a loan against your policy, which is repaid from the death benefit.
Sections 148 and 12.2 and Regulations 304 to 307 of the Income Tax Act (Canada)
are of particular interest when examining the taxation applied to life insurance
policies. As discussed in Canada Customs and Revenue Agency’s Interpretation
Bulletin IT87R2 "Policyholders’ Income from Life Insurance Policies,"
these sections and others provide the basis for the tax advantages of tax "exempt"
universal life policies.
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Universal
life insurance combines long-term insurance protection and significant tax-related
and other financial benefits.
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