Universal Life

Universal Life policies may be a powerful tool in the tax planning arsenal, particularly when virtually all other tax shelters appear to have been curtailed.

- Coopers & Lybrand

• Universal Life is a flexible permanent insurance product with significant guarantees.
• Its component parts include term insurance and a tax deferred savings fund.
• Universal Life is an accountable product with built in guarantees.
• Universal Life is also unbundled with mortality, administration and saving components.

• Deposits are made at the beginning of the year.
• The Cost of Insurance, Premium Tax and the Policy Fee are automatically deducted from the deposit (charges are deducted on a monthly basis). The remainder is invested in your chosen investment account(s).
• If the policy’s Cash Value remains below the MTAR Line (Maximum Tax Actuarial Reserve), your investment will be tax sheltered.
• If the Cash Value exceeds the MTAR Line, the death benefit will be increased by a maximum of 8%, and if the cash value still exceeds the MTAR line, the excess will automatically be transferred to a side fund that will be subject to annual taxation.
• If in subsequent years, the Cash Value of your policy falls below the MTAR, monies from the taxable side fund will be transferred back into the tax sheltered investment.

• Within certain limits, you have the flexibility to vary premium payments.
• Some of the options that you have are making periodic deposits into the plan or taking a premium holiday.

  The Savings Component of Universal Life

  With investors becoming more and more sophisticated, there is an increasing variety of investment options available in Universal Life policies.

  Guaranteed Interest Accounts

  • The rate of interest assigned to a deposit is guaranteed not to change for the duration of the term.
  • Compound interest will be credited on a monthly basis.
  • Rolling average interest accounts.

  Indexed Accounts

  Historically, equities provide the greatest growth potential, and the greatest amount of risk

  

  Investment Bonuses

  • Attractive bonuses are available on each of the investment accounts
  • The bonuses are designed to reward specific policyholder actions such as persistency, level of policy funding or policy surrender with an enhancement to the policy value

  Tax Treatment of Savings Component

  • Section 12.2 of the ITA allows for tax sheltering of funds within an exempt plan. Tax may be payable on accumulated values if withdrawn from the policy.
  • cost base is reduced by prescribed mortality charges - eventually all cash value is taxable
  • death benefit is tax free.
  
  
  
  
  
  

  
  
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