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Universal life

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Definition of Universal life

Universal Life Image 1

Universal life

A whole life insurance product whose investment component pays a competitive interest rate
rather than the below-market crediting rate.


Universal Life

An unbundled life product with a separate investment component. It typically does not participate in companies profits.



Related Terms:

Assuris

Assuris is a not for profit organization that protects Canadian policyholders in the event that their life insurance company should become insolvent. Their role is to protect policyholders by minimizing loss of benefits and ensuring a quick transfer of their policies to a solvent company where their benefits will continue to be honoured. Assuris is funded by the life insurance industry and endorsed by government. If you are a Canadian citizen or resident, and you purchased a product from a member life insurance company in Canada, you are protected by Assuris.
All life insurance companies authorized to sell in Canada are required, by the federal, provincial and territorial regulators, to become members of Assuris. Members cannot terminate their membership as long as they are licensed to write business in Canada or have any in force business in Canada.
If your life insurance company fails, your policies will be transferred to a solvent company. Assuris guarantees that you will retain at least 85% of the insurance benefits you were promised. Insurance benefits include Death, Health Expense, Monthly Income and Cash Value. Your deposit type products will also be transferred to a solvent company. For these products, Assuris guarantees that you will retain 100% of your Accumulated Value up to $100,000. Deposit type products include accumulation annuities, universal life overflow accounts, premium deposit accounts and dividend deposit accounts. The key to Assuris protection is that it is applied to all benefits of a similar type. If you have more than one policy with the failed company, you will need to add together all similar benefits before applying the Assuris protection. The Assuris website can be found at www.assuris.ca.


Insured Retirement Plan

This is a recently coined phrase describing the concept of using universal life Insurance to tax shelter earnings which can be used to generate tax-free income in retirement. The concept has been described by some as "the most effective tax-neutralization strategy that exists in Canada today."
In addition to life insurance, a universal life Policy includes a tax-sheltered cash value fund that cannot exceed the policy's face value. Deposits made into the policy are partially used to fund the life insurance and partially grow tax sheltered inside the policy. It should be pointed out that in order for this to work, you must make deposits into this kind of policy well in excess of the cost of the underlying insurance. Investment of the cash value inside the policy are commonly mutual fund type investments. Upon retirement, the policy owner can draw on the accumulated capital in his/her policy by using the policy as collateral for a series of demand loans at the bank. The loans are structured so the sum of money borrowed plus interest never exceeds 75% of the accumulated investment account. The loans are only repaid with the tax free death benefit at the death of the policy holder. Any remaining funds are paid out tax free to named beneficiaries.
Recognizing the value to policy holders of this use of universal life Insurance, insurance companies are reworking features of their products to allow the policy holder to ask to have the relationship of insurance to investment growth tracked so that investment growth inside the policy may be maximized. The only potential downside of this strategy is the possibility of the government changing the tax rules to prohibit using a life insurance product in this manner.


Average life

Also referred to as the weighted-average life (WAL). The average number of years that each
dollar of unpaid principal due on the mortgage remains outstanding. Average life is computed as the weighted average time to the receipt of all future cash flows, using as the weights the dollar amounts of the principal
paydowns.


Canadian Life and Health Insurance Association (CLHIA)

An association of most of the life and health insurance companies in Canada that conducts research and compiles information about the life and health insurance industry in Canada.



Deferred nominal life annuity

A monthly fixed-dollar payment beginning at retirement age. It is nominal
because the payment is fixed in dollar amount at any particular time, up to and including retirement.


Economic life

The period over which a company expects to be able to use an asset.


Universal Life Image 2

Group Life Insurance

This is a very common form of life insurance which is found in employee benefit plans and bank mortgage insurance. In employee benefit plans the form of this insurance is usually one year renewable term insurance. The cost of this coverage is based on the average age of everyone in the group. Therefore a group of young people would have inexpensive rates and an older group would have more expensive rates.
Some people rely on this kind of insurance as their primary coverage forgetting that group life insurance is a condition of employment with their employer. The coverage is not portable and cannot be taken with you if you change jobs. If you have a change in health, you may not qualify for new coverage at your new place of employment.
Bank mortgage insurance is also usually group insurance and you can tell this by virtue of the fact that you only receive a certificate of insurance, and not a complete policy. The only form in which bank mortgage insurance is sold is reducing term insurance, matching the declining mortgage balance. The only beneficiary that can be chosen for this kind of insurance is the bank. In both cases, employee benefit plan group insurance and bank mortgage insurance, the coverage is not guaranteed. This means that coverage can be cancelled by the insurance company underwriting that particular plan, if they are experiencing excessive claims.


Joint Policy Life

One insurance policy that covers two lives, and generally provides for payment at the time of the first insured's death. It could also be structured to pay on second death basis for estate planning purposes.


Level Premium Life Insurance

This is a type of insurance for which the cost is distributed evenly over the premium payment period. The premium remains the same from year to year and is more than actual cost of protection in the earlier years of the policy and less than the actual cost of protection in the later years. The excess paid in the early years builds up a reserve to cover the higher cost in the later years.


life cycle costing

the accumulation of costs for activities that
occur over the entire life cycle of a product from inception
to abandonment by the manufacturer and consumer


Life Expectancy

The average number of years of life remaining for a group of people of a given age and gender according to a particular mortality table.


Life Income Fund

Commonly known as a LIF, this is one of the options available to locked in Registered Pension Plan (RPP) holders for income payout as opposed to Registered Retirement Savings Plan (RRSP) holders choice of payout through Registered Retirement Income Funds (RRIF). A LIF must be converted to a unisex annuity by the time the holder reaches age 80.


Life Insurance

Insurance that provides protection against an economic loss caused by death of the person insured.


Life Insurance (Credit Insurance)

Group Term life insurance that pays or reduces the balance due on a loan if the borrower dies before the loan is repaid.


Life Insured

The person who's life is protected by an individual policy.


Life Underwriter

Insurance Agent.


Lifecycle costing

An approach to costing that estimates and accumulates the costs of a product/service over
its entire lifecycle, i.e. from inception to abandonment.



Mortgage Life insurance (Credit Insurance)

Decreasing term life insurance that provides a death benefit amount corresponding to the decreasing amount owed on a mortgage.


product life cycle

a model depicting the stages through
which a product class (not necessarily each product) passes


Shelf life

The time period during which inventory can be retained in stock and beyond
which it becomes unusable.


Shelf life control

Deliberate usage of the oldest items first, in order to avoid exceeding
a component or product’s shelf life.


Split Dollar Life Insurance

The split dollar concept is usually associated with cash value life insurance where there is a death benefit and an accumulation of cash value. The basic premise is the sharing of the costs and benefits of a life insurance policy by two or more parties. Usually one party owns and pays for the insurance protection and the other owns and pays for the cash accumulation. There is no single way to structure a split dollar arrangement. The possible structures are limited only by the imagination of the parties involved.


Temporary Life Insurance

Temporary insurance coverage is available at time of application for a life insurance policy if certain conditions are met. Normally, temporary coverage relates to free coverage while the insurance company which is underwriting the risk, goes through the process of deciding whether or not they will grant a contract of coverage. The qualifications for temporary coverage vary from insurance company to insurance company but generally applicants will qualify if they are between the ages of 18 and 65, have no knowledge or suspicions of ill health, have not been absent from work for more than 7 days within the prior 6 months because of sickness or injury and total coverage applied for from all sources does not exceed $500,000. Normally a cheque covering a minimum of one months premium is required to complete the conditions for this kind of coverage. The insurance company applies this deposit towards the cost of a policy at its issue date, which may be several weeks in the future.


Term Life

A product that provides life coverage for a specified duration typically not beyond the age of 75.


Term life insurance

A contract that provides a death benefit but no cash build-up or investment component.
The premium remains constant only for a specified term of years, and the policy is usually renewable at the
end of each term.


Term Life Insurance

A plan of insurance which covers the insured for only a certain period of time and not necessarily for his or her entire life. The policy pays a death benefit only if the insured dies during the term.


Useful life

The estimated life span of a fixed asset, during which it can be expected to
contribute to company operations.



Variable life insurance policy

A whole life insurance policy that provides a death benefit dependent on the
insured's portfolio market value at the time of death. Typically the company invests premiums in common
stocks, and hence variable life policies are referred to as equity-linked policies.


Weighted average life

See:Average life.


Whole Life

Component that provides life coverage during the insured's life.


Whole life insurance

A contract with both insurance and investment components: (1) It pays off a stated
amount upon the death of the insured, and (2) it accumulates a cash value that the policyholder can redeem or
borrow against.



 

 

 

 

 

 

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