Permanent Life Insurance provides life insurance protection for your lifetime. There are many features, options and benefits to be found in Permanent Life Insurance products.
What types of Permanent Life Insurance can you buy?
Participating Life Insurance gives you life insurance that lasts forever along with a tax-advantaged savings component.
Participating life insurance offers some flexibility such as:
- Guarantees for the basic coverage which include guaranteed premiums, death benefit and cash surrender values
- Tax deferred growth of the savings portion
- Whole Life policies also earn policyholder dividends. These dividends are not guaranteed but they allow the policy owner to participate in the financial results of a good insurance company. A portion of the premium paid is returned to the policy owner if a company experiences good claims experience, manages their expenses appropriately, and earns a decent rate of return on invested premiums. The premiums are invested primarily in low risk fixed income securities. There are many options as to how the dividends can be used including purchasing extra insurance, reducing or even paying the entire premium, or they can be received in cash.
- A choice of riders and benefits that offer additional options can be added to the basic policy
These types of policies provide lifetime coverage and guaranteed premiums. They are among the simplest permanent life insurance policies to understand.
Pure Term to 100 Life Insurance is a permanent policy that gives you lifelong protection for a fixed guaranteed premium. They have no cash values or tax deferred savings. It is just pure life insurance protection.
20 Pay Life insurance policies are similar except that you only have to pay premiums for a maximum of 20 years. After a certain period (usually 10 years) the policy will have a guaranteed cash value and guaranteed reduced paid up insurance amount. If you pay the full 20 years the policy is paid up with no further premiums required. You can cancel the policy at any time and the guaranteed cash value is yours to keep.
Similarly there are a wide range of optional riders that can be added to these policies to customize them to your specific needs.
Universal Life Insurance provides permanent life insurance coverage, but offers many more flexible options than either Whole Life or Term to 100/20 Pay life.
Choice and customization are what set Universal Life Insurance apart. There are options for the cost of insurance that range from annually increasing cost of insurance to level lifetime cost of insurance, or limited pay options where the insurance is paid off in 10, 15, or 20 years.
You can increase or decrease your insurance amount as your needs change. You can add coverage for additional people to the plan such as your wife, children, business partner, etc.
Another important feature is flexibility in premium payment. There is a required annual minimum premium to cover the expenses of the policy; after that you can pay as much as you wish to a certain maximum. 100% of the additional premium (less the 2% provincial premium tax) is deposited in the investment options of your choice. See the section below for more information on what these investment options are.
Like all Life Insurance policies that have a cash accumulation feature, Universal Life insurance offers tax-advantaged growth. The account value in your policy can grow tax free as long as the money stays within the Universal Life insurance contract. If you pass away the policy face amount is paid to your beneficiary tax free. In addition the accumulated account value along with any investment earnings is paid in addition to the face amount of the policy.
Universal Life provides an excellent vehicle for passing on assets upon death that you know you will not need for income purposes in your lifetime. It is also excellent for removing surplus cash from corporations tax free upon death using a technique known as the Corporate Estate Transfer. Ask your advisor how these and the other features of Universal Life Insurance may be used to maximize estate values for your intended beneficiaries.
Investments Within Universal Life Insurance Policies
Excess cash within a Universal Life Insurance policy is invested in various investment options including:
- Daily Interest Account - a low risk solution if the money may be needed
- Guaranteed Interest Account - a low risk solution for money that is not required for immediate needs; can be invested for period of 1,2, 3, 5, 10 years or longer at compound rates of return
- Variable Interest Account - this option provides access to various mutual fund linked investments managed by a professional manager as well as market index linked funds that are passively managed; you can invest in any asset class and some insurance companies offer up to 450 different mutual funds on their product platform
Other Flexible Riders and Benefits of Universal Life Insurance Policies
While too numerous to list here these include:
- Term 10, 20, and 30 life insurance policies attached to your UL contract
- Critical Illness Insurance riders
- Rider that will pay varying amounts of premium to the policy in the event you are disabled
- Accidental Death Benefit riders
- Guaranteed Insurability rider
- Business growth protection rider