Universal life insurance helps you build cash value while creating lifelong protection that can support your family, business, and estate-planning goals.
“It’s a great feeling knowing my family will be OK financially when I pass away.” -Andy L., Ontario
Choose from available investment options, including index-linked accounts.
Adjust your deposits as your income and financial circumstances change.
Grow qualifying policy values while creating a tax-free estate benefit.
Universal Life is permanent life insurance that combines lifelong insurance protection with a tax-advantaged investment component.
One of its biggest advantages is control and flexibility—within the options offered by the insurance company, you can choose how your policy’s investment component is allocated and change those allocations as your objectives change.
Depending on the insurer, choices can include fixed-interest options and accounts linked to Canadian, U.S., or other market indexes. You can also make additional deposits within the policy and tax limits to build greater policy value.
Universal Life can provide permanent estate liquidity, fund future taxes, leave a larger inheritance, protect a business, or transfer wealth to the next generation.
For people with substantial investments, some money currently invested elsewhere can potentially be redirected into a Universal Life policy, where qualifying policy values can grow without annual taxation while remaining within the exempt-policy limits.
You also have the flexibility to select from the investment options offered by the insurer—so if you prefer index-linked strategies, you may be able to use index-linked accounts inside the policy. The accumulated policy values can help support the future cost of insurance while the policy creates a tax-free death benefit for your family.
Universal Life Insurance is one type of permanent life insurance. Within a Universal Life policy, you choose how the Cost of Insurance (COI) is charged over time. Below are the three main COI options available in Ontario.
Yearly Renewable Term generally starts with lower insurance costs that increase as you age, potentially allowing more of your early deposits to accumulate in the policy.
Level Cost of Insurance generally charges a higher initial insurance cost that remains level, providing greater predictability over the long term.
Limited-Pay structures are designed to concentrate the cost of insurance over a defined period, generally requiring larger payments during those years.
At SWPP we specialize in helping business owners, real estate investors, and families with complex estates to preserve their wealth.
| Cost Option | How It Works | May Suit | Key Consideration |
|---|---|---|---|
| Yearly renewable term | Insurance costs generally increase with age | Buyers seeking lower initial costs and greater early cash-value potential | Rising costs require careful long-term funding |
| Level cost | Insurance costs remain level | Buyers who value predictable long-term costs | Initial costs are generally higher |
| Limited pay | Insurance costs are paid over a set period | Buyers who want to complete payments within a defined timeframe | Payments may be higher during the funding period |
Policy costs, guarantees, cash values, and tax consequences depend on the specific policy and how the corporation structures and uses it. An Ontario business owner should obtain advice based on the corporation’s needs and financial circumstances.
Universal Life can be particularly valuable when you need permanent insurance but also want greater control over how the policy’s investment component is managed.
It may be worth considering if you have significant investments, future estate taxes, business interests, real estate, or surplus cash and want the flexibility to choose among available investment options, adjust deposits, and create a tax-free legacy for your family.
In my experience, one of the biggest advantages of Universal Life is that you have more control over both how much you deposit and how the investment portion of your policy is allocated.
If you prefer index-linked investments, for example, you may be able to select index-linked accounts offered by the insurance company while your qualifying policy values grow on a tax-advantaged basis.
Those accumulated values can help support the future cost of your insurance, which ultimately creates a tax-free death benefit for your family. You aren’t simply buying insurance, you are deciding how some of the money you are already investing can work differently for your estate.
EXAMPLE
Chad, 73, and Ann, 72, had rental income covering their lifestyle, approximately $5 million in non-registered investments and $1.2 million in RRIFs, but were concerned about future estate taxes.
We evaluated Universal Life because they could redirect some of their investment dollars into a tax-advantaged policy while choosing from the investment options available through the insurer. They also liked the flexibility to change their deposits and investment allocations as their circumstances changed.
The accumulated policy values could help fund the insurance designed to create the tax-free money their family will eventually need to help pay their estate tax bill.
Universal Life combines permanent life insurance with a tax-advantaged investment component. After policy charges are deducted, additional deposits can be allocated among the investment options offered by the insurer and can accumulate without annual taxation while the policy continues to qualify under Canadian exempt-policy rules.
The cost depends on your age, health, amount of insurance, Cost of Insurance option, and how the policy is funded. For estate planning, the better question is often what you receive for what you invest—including investment flexibility, cash value, tax advantages, and the eventual tax-free death benefit.
The major advantages are permanent protection, flexible deposits, tax-advantaged accumulation, and greater control over how policy values are allocated among the insurer’s available investment options. The trade-off is greater complexity because long-term values can be affected by deposits, insurance costs, fees, investment performance, withdrawals, and how the policy is managed.
Many Universal Life policies offer accounts with returns linked to market indexes, allowing you to choose an index-linked strategy within the policy. You generally do not directly own the index or its underlying investments; instead, the insurer credits returns according to the terms of the particular index-linked account.
Universal Life may be worth considering if you need permanent insurance and want flexibility over deposits and greater control over how the policy’s investment component is allocated. Before purchasing it, compare Universal Life with Whole Life, Term 100, and other estate-planning strategies to determine which approach best meets your objectives.
Do you need life insurance? Get started with a zero-obligation life insurance and estate planning consultation today.
Do you need life insurance? Get started with a zero-obligation life insurance and estate planning consultation today.
SWPP helps Ontario business owners use corporate-owned life insurance to protect their companies, manage future tax liabilities, and transfer more wealth to the next generation. During our 35 years experience we’ve helped hundreds of families protect millions of dollars from taxes.
At SWPP, we are licensed and recognized advisors. Our goal is to protect your family’s money and assets. We help families, business owners, and real estate investors do comprehensive estate planning in Ontario.
We’re focused on making sure you leave the most for your loved ones instead of giving your hard-earned assets to CRA.
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