Why is Universal Life Insurance an excellent Estate Planning tool?
Article Licenses: CA, DL, LI, TX, US
Compliant content provided by Adviceon® Media for educational purposes only.
There are several reasons why people use Universal Life (UL) for estate planning.
- The death benefit is adjustable. The amount of life insurance can be increased or decreased to reflect your changing needs. If the death benefit remains level, eventually the major portion of the benefit, over a long period of time, can consist of the cash reserve (CSV). As the need for the insurance shrinks, the cash can increase, providing the insurance cost doesn’t reduce the cash value and its growth. If the death benefit grows, the cost of insurance will increase with age, and continues to be paid from the cash value.
- You can insure more than one life in the plan. You have the option of insuring yourself, your spouse, both of you, your children, or business associates using one or more of these policies. In some cases, the ownership can be transferred or lives added and the premiums paid from the original tax advantaged funds. Your death benefit can be payable after the first spouse’s death to provide an income for the surviving spouse. Alternatively, you can arrange to have the benefit paid after the second spouse’s death to maximize the value of your family’s inheritance or meet your estate’s tax liabilities.
- UL works to protect you from the potential tax liability of your estate. Discuss your estate use of UL with a good tax advisor, CA, or financial advisor specializing in estate taxation. You may also want to seek counsel from an estate-planning lawyer. Make sure you, along with your financial representative, assess the estate’s need for life insurance and the various solutions. The best estate-planning solutions are most often insurance related because life insurance is designed to pay a large capital benefit at precisely the time it is needed.
- Mitigate tax erosion of the value of a significant estate. If you own stocks and bonds, equity investment funds, a family cottage, a second residence, or business assets you may face capital gains taxation in your estate. Upon death, taxes will also be due on funds remaining in an RRSP/RRIF (after the death of both spouses in the case of a married couple). One policy can replace or pre-fund such taxes due. With a joint last-to-die policy, the insurance proceeds can be used to cover the estimated estate taxes. The advantage is that one’s entire pre-tax estate valuation can pass, as desired, to the family heirs.
- Circumvent probate and/or estate administration tax (EAT). When the tax-free benefit is paid directly to beneficiaries, there is no need to probate this money or have it reviewed by the government. In fact, other beneficiaries have no recourse to complain about monies paid to heirs in this manner. Depending on the province, such legislation may be under review or currently changing.
- Business owners can protect their asset value. The death benefit of a UL policy can create immediate capital to take a business through the transition of losing one of its leaders, or key employees, while allowing surviving partners to buy out the outstanding interests via a payout of the share ownership of the deceased partner. This is commonly done within the framework of a well structured buy-sell agreement.
- Other tax advantages. A UL policy owner can earn and accumulate tax deferred interest to potentially increase the after-tax yield of your investments and policy cash value over the long term. The UL deposits are protected from secondary annual taxation on interest earnings until withdrawn.
Publisher's Copyright & Legal Use Disclaimer Replication is prohibited beyond the use of this
website. The publisher does not guarantee the accuracy and will not be held liable in any way for any error, or
omission, or any financial decision or purchase or use of a financial product, including investment or insurance
products, and suggest that a professional advisor's counsel is sought, especially with regard to Mutual Funds and
Segregated Funds and Investment Funds which have investment risks as noted in the Mutual Fund Disclaimer. All
rights reserved by Adviceon®
Disclaimer The particulars contained herein were obtained from sources which we believe are
reliable, but are not guaranteed by us and may be incomplete. This website is not deemed to be used as a
solicitation in a jurisdiction where this representative is not registered. This content is not intended to provide
specific personalized advice, including, without limitation, investment, insurance, financial, legal, accounting or
tax advice; and any reference to facts and data provided are from various sources believed to be reliable, but we
cannot guarantee they are complete or accurate; and it is intended primarily for Canadian residents only, and the
information contained herein is subject to change without notice. References in this Web site to third party goods
or services should not be regarded as an endorsement, offer or solicitation of these or any goods or services.
Always consult an appropriate professional regarding your particular circumstances before making any financial
Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investment
funds, including segregated fund investments. Please read the fund summary information folder prospectus before
investing. Mutual Funds and/or Segregated Funds may not be guaranteed, their market value changes daily and past
performance is not indicative of future results. The publisher does not guarantee the accuracy and will not be held
liable in any way for any error, or omission, or any financial decision. Talk to your advisor before making any
financial decision. A description of the key features of the applicable individual variable annuity contract or
segregated fund is contained in the Information Folder. Any amount that is allocated to a segregated fund is
invested at the risk of the contract holder and may increase or decrease in value. Product features are subject to