A Quick Guide to Understanding Universal Life Insurance in Canada

Universal life insurance is a type of permanent life insurance. That means it’s designed to stay for your entire life, not just a set number of years like term insurance. As long as you maintain the policy, your coverage won’t expire, and your beneficiaries will receive a tax-free death benefit whenever you pass away. 

It goes one step further. Universal life insurance combines lifelong insurance with a built-in investment component. A portion of your premiums pays for the cost of insurance, while the rest is deposited into an investment account inside the policy. That investment grows tax-deferred, meaning you don’t pay taxes on the growth as long as the funds stay within the policy.

This dual-purpose structure is what makes universal life a long-term financial planning tool, not just a safety net.

One of the biggest reasons Canadians choose universal life insurance is its flexibility. You aren’t locked into one fixed premium like with whole life insurance. You can choose to pay the minimum amount required to keep the policy active, or pay more and grow the investment component over time.

Furthermore, you can also adjust your death benefit (within certain limits) and switch between death benefit options. As your needs change, whether you’re starting a family, building a business, or planning for retirement, universal life adapts with you.

As opposed to other policies where death benefit stays the same, with universal life, you have choices.

Many Canadians choose a Level Death Benefit, where your beneficiaries get a set amount. 

For example, let’s say your death benefit is $500,000. Your beneficiaries will get $500,000 regardless of what the investment account is worth. This is typically cheaper to insure, and is more about insurance than investment.

Some Canadians prefer an Increasing Death Benefit, where the beneficiaries receive (the base amount hinged to the returning investment) the accumulated value. 

For example, If I have a $500,000 base amount or face value of coverage and I have an investment account, and it has grown to $100,000; the beneficiaries would receive a total amount of $600,000. Even if the premiums tend to be higher, you would usually end up with a bigger death benefit.

If you need assistance we can help you compare both options based on your goals. Whether you want to limit premiums or leave your heirs something more.

After you have paid for the insurance coverage, the remaining amount of your premium will be allocated to an investment account within your policy. You generally have a range of investment options to choose from, some conservative and others with more growth potential.

Many Canadians prefer these guaranteed interest options for the stability, or they prefer the market-linked or indexed accounts due to the potential to earn more over time. The key advantage of this structure is that all growth inside the policy is tax-deferred, allowing for a greater compounding effect than would be found in a non-registered account.

Due to the tax-efficient nature of universal life policies, high-income earners or business owners that have contributed to RRSP (Registered Retirement Savings Plan) and TFSA (Tax-Free Savings Account), may consider this an attractive way to grow wealth. 

Want to learn how RRSPs maximize your savings? Or want to learn about the benefits of a TFSA? We are happy to assist you.

Absolutely, and that is one of the key attractive features of universal life insurance. Over time, the investment side of your policy grows in cash value, a living benefit you can access if needed.

There are two ways to gain access:

• Making a withdrawal: You can take money from the policy directly. You may have to pay tax on the amount withdrawn, and it may reduce the death benefit, but it is an option if you wish to access some money for education, new real estate, or emergencies.
   
• Policy or collateral loans: This is a lower tax implication way to gain access to cash value by borrowing against it. Your policy is used as collateral for the loan you will receive from the insurer or a lender. This option is popular for business owners or retirees who want to access funds but stay intact to their long-term plans without realizing taxable events. 

Accessing cash value is a popular way Canadians use universal life insurance, as a financial reservoir to access as their need arises through key life stages.

Universal life insurance isn’t for everyone, and that’s okay. It is an advanced financial tool that is best suited for Canadians who desire life insurance for long-term, market linked investments, tax-favored wealth accumulation, tax planning, and estate preservation, as opposed to short-term coverage.

You might want to consider a universal life insurance if you identify with any of the following:

• You are a high-income earner who has maxed out both RRSPs or TFSAs and wants an additional tax-advantaged way to shelter more income.
• If you are focused on estate planning, and want to leave more than a death benefit, something that grows with you and provides the maximum value to your family or charitable giving after you die. 
• You are a professional or business owner, and you want more options with your premium payments and cash value of your policy, along with the ability to structure it for long-term planning.
• An investor who sees value in index-based or managed fund strategies, that further have options for strategies like NASDAQ, S&P 500, or any other leading and regulated professionally managed funds through top Canadian insurers. They look forward to giving you access to fund managers with global recognition. 

At Wiseconomy, we help you weigh the pros and cons of universal life insurance based on your unique income, risk profile, and long-term goals, so you can make a decision rooted in clarity, not confusion.

At Wiseconomy, we don’t have anything to sell you. We’re here to help you build a tailed insurance strategy. That means real conversations, real numbers, and real learning on how universal life insurance fits into your broader picture.

We help you:

• Check quotes from top Canadian insurance companies
• Understand illustrations and long-term imaginations
• Tailor your investment options
• Assess borrowing and tax strategies based on your unique circumstances 
• Keep your policy on track as your life shifts

We work with Canadians in all walks of life who want more than just standardized coverage. We value clarity over confusion and education before executing decisions.

If you’re wondering if universal life insurance makes sense for you and your financial future, reach out to us. We’ll explain everything in plain language and walk through the options without any pressure.

Schedule a free consultation with Wiseconomy today.

You will leave more informed and more confident in your next steps.