Know your Financial Terms-What is Universal Life Insurance?

Universal Life insurance is a type of permanent, cash value life insurance that offers more flexibility at more cost compared to Term or Whole life insurance. It covers you for life and incorporates a potentially high-earning investment account.

Most people buy life insurance because they see it as a way to cover the financial risk to their loved ones should they die; others target the cash value of the life insurance component for various purposes.

Permanent life insurance policies offer cash-value accumulation and death benefits designed to offer more flexibility to the holder, who determines the premium to be paid within a preset range.


The excess premium payment is divided into two parts: a portion covers a life insurance policy, while the other part is held in an interest-bearing account.

The policyholder  can use the cash value in a variety of ways;

  • A benefit they can pass on 
  • A tax-protected investment
  • A means to sustain future premium payments.

Withdrawals from a policy impact the cash value death benefit and carry accompanying tax implications, mainly if the loan withdrawal was outstanding at the time of the policy holder's death. Such withdrawals would attract significant tax penalties.

For this type of Life Insurance, your beneficiary would only receive the death benefits, not the cash-value accumulations.

According to a recent Angus Reid survey, almost fifty percent of Canadians are being sold costly, complicated permanent life insurance such as Universal Life, when they only require term insurance.


WealthyPlanet's "Wealthopedia"  series demystifies financial terms and financial industry lingo. 


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