Universal Life Insurance

If you are looking to buy universal life insurance in Canada, there are many different things to consider. This page talks about universal life insurance, the features and benefits of universal life insurance, and how to decide what universal life insurance solution is right for you.

What is Universal Life Insurance?

Universal life insurance, sometimes shortened to “UL”, is a flexible insurance plan that includes: permanent life insurance and an investment component.

In other words, universal life insurance is a life insurance product with additional benefits. When deciding if universal life insurance is right for your family or business needs, consider what your insurance needs are to balance with your investment comfort levels.

Is Universal Life the Same As Whole Life Insurance?

Universal is not the same as whole life insurance. There are distinct advantages for each types of permanent insurance. Whole life is considered a ‘bundled’ insurance product, while universal life is unbundled and therefore, has more options on how to set up and tailor a contract. This means you can vary your monthly deposit, choose a level or increasing death benefit option, or tailor your investment choices within a tax sheltered account.


The advantage of purchasing universal life insurance is that it not only provides you with high-quality, permanent life insurance coverage, but also tax-advantaged investing opportunities.


How Does Universal Life Insurance Work?

The monthly or annual premiums for a universal life insurance policy go towards insurance coverage costs and the balance goes into a tax-deferred investment.

With a universal life insurance policy, you pay a money premium (typically monthly) into one or more investment accounts .

With universal life insurance, you can choose to have an investment portion or not. If you pay only the insurance and administration costs, there is no tax-advantaged growth. A policy that only covers the insurance and administration fee is called a minimally-funded UL. It’s similar to a Term-to-100 product.

A UL policy that has excess deposits so that some goes into the investment account, is called an overfunded UL. Every month, the insurance company deducts money for cost of insurance & administrative expenses (i.e. policy fee). Any excess deposits you pay over the insurance cost, can grow in a tax-advantaged way, within the policy. The money in that investment earns a return that is based on the performance of the investment accounts you have chosen. The return could be negative or positive. The money in your investment accounts is called account value. Because the investment is part of a life insurance policy, you don’t have to pay taxes on the growth in the investment*.


* Unless it exceeds an amount determined under the Income Tax Act.

Advantages of Universal Life Insurance (UL)

Payment Options

Choose insurance that does not increase in price as you get older, or choose a lower cost to start, that increases each year.

Riders & Options

Optional benefits that can be added to a contract. This enables you to customize your coverage.

Flexible Death Benefits

You can choose from a death benefit that stays the same, or goes up or down as you age.

Investment Options

Different investment options within the cash value component.

Sample Universal Life Insurance Scenarios

With a mortgage and 2 young kids, these parents to get some permanent insurance in place while they are young and healthy. They add term insurance layers for 10 and 20 years to cover liabilities and ensure income and education needs will be met.

A 54 year old male that is a non-smoker and does not have any serious health conditions. He chooses a universal life insurance plan with a level cost and level death benefit. He wants to build up cash value and also ensure final expenses will be covered. He chooses a company that offers critical illness as a rider so he has some living benefits as well.

A 49 year old female chooses a combination of universal life and term life insurance riders. She includes children’s insurance to cover her two kids and guarantee their insurability later. 

What Can I Do With A Universal Life Insurance Plan?

A UL policy offers helpful tax efficencies within the contract (policy). Because of the savings component, you can:


  • Build assets for your children and grandchildren
  • Protect your mortgage debt
  • Increase your retirment income
  • Protect retirement savings in the event of disability of illness *

What Is Included With A Universal Life Insurance Contract?

Different insurance companies have different options and benefits included with the universal life products they offer. This is why it’s important to get quotes from an independent broker that can help you find the best company for your needs.

Depending on which company you choose, some offer additional benefits that do not cost any extra monthly fees:


  • Compassionate Assistance/Care: you might be able to take out a loan against the death benefit in the event the insured is terminally ill.
  • Living Health: if disabled of ill, you mayb be able to access additional funds within the policy. Note that the definitions of “disabled” varies from each company as well as what diagnoses illnesses are covered.

What different types of riders are available with universal life insurance?

Riders are optional benefits that a person can choose to have as part of their insurance policy. The fees and availability of riders are different from one company to another. Riders enable you to customize your coverage to fit your goals and budget.

Level Cost of Insurance

Critical Illness Protection

Children’s Insurance

A rider than means the cost of insurance protection stays the same until the person turns 100.

Extra insurance coverage for up to 25 conditions (for example: heart attack, cancer or stroke) that provides a lump sum payment that is not taxed. Term life insurance coverage for your children that is very low cost and guarantees their insurability when they become adults.


Term Riders

Waiver of Premiums

Accidental Death & Dismemberment

Additional insurance protection for set periods of time, such as 10-, 20- or 30- years.

Waiver of planned premiums for the insured in the event they are totally disabled (usually before age 65). An additionl benefit in the event the insured person dies or suffers dismemberment as a result of an accident.


What Can I Expect From UL Investments?

When you are considering a universal life insurance policy, it’s important to review illustrations from the insurance carriers you are considering. An illustration describes how the policy might perform with different market conditions. It is important to understand what the investment assumptions are and keep in mind that performance is not guaranteed.


Can I Manage My Own Investments In A Universal Life Insurance Account?

With certain carriers, you can opt to choose, review and manage your own investments. For example, if you choose to life universal life insurance from Manulife, they offer a Manulife UL Client Investment Select. In this case, you can choose from over 50 investment account options that are best-in-class.

What If I Don’t Want To Manage My Own Investments?

With certain carriers, you can opt to choose, review and manage your own investments. For example, if you choose to life universal life insurance from Manulife, they offer a Manulife UL Client Investment Select. In this case, you can choose from over 50 investment account options that are best-in-class.

If you want flexibility in your planning, universal life insurance offers the ability to:


Ability to pay premiums over a short period of time (overfunding) so the investment account builds enough cash value to cover future monthly deductions.
Earmark a source of funds to cover immediate, final expenses, such as a funeral.
Replace any future income that is lost if you die before retirement.
Offset taxes which become payable on your RRSP when you pass away.
Reduce the impact of taxes that are owed on assets in your estate that are taxable. For example, capital gains.
You can complement your post-tax retirement income using the cash built-up in your policy.
Transfer wealth to your beneficiaries in a tax efficient way.
Leave a legacy gift by naming a charity that is important to you as the beneficiary (or one of the beneficiaries.

I Was Quoted A Standard Rate for Insurance – Is This Guaranteed?

It’s not, sorry! The monthly premium listed in an illustration is usually quoted at a “standard rate”, this is the fee for a person of average health. After the underwriting process, you may have a rate that is higher or lower than that, depending on your health status. You can have a conversation with an advisor to discuss any health concerns you have to understand what rates to anticipate. In many cases, preliminary underwriting can be completed so there are no surprises.

What Are Preferred Rates?

If you consider yourself healthier than average, you may be able to get a discounted rate for your insurance premiums. Companies take into account things like cholesterol levels, blood pressure and family medical history. This can create a savings reward for your healthy living efforts.

Do You Want To Better Understant Universal Life Insurance?

Dickson Insurance is independent; we are not affiliated with a specific company and provide ethical and unbiased advice. We provide illustrations and product recommendations from top Canadian insurance providers based on your financial planning needs.