Universal life insurance is a form of permanent
insurance that provides lifetime protection with lots of flexibility.
With universal life, you have a policy fund, which is
your cash value and acts like a cash reserve. This reserve holds both
your basic payments and any additional lump sum payments you make. Your
cost of insurance is deducted from your policy fund and the rest is left
to accumulate interest. But unlike a regular permanent plan where your
cash value increases at a fixed rate, the cash value of your universal
life policy achieves an interest rate that mirrors the performance of
the market indexes or managed fund accounts you select to have your
policy track.
You don’t pay tax on the interest in your policy fund
unless you withdraw it or exceed the maximum tax-exempt limit. If
there’s enough in your policy fund to cover your cost of insurance, you
can skip a payment because it will be deducted from the amount you’ve
already paid into your policy fund.
Depending on the kind of universal life insurance you
purchase, your beneficiary may receive not only the amount of the death
benefit (your insurance coverage), but also the amount in your policy
fund.
You can also include additional coverage like
critical illness insurance and term coverage for your spouse or children
on your universal life policy.
How much is enough?
When most people think about life insurance, they
usually have two main questions: how much coverage do I need, and how
long do I need it for?
Many financial experts advise that the total value of
all your life insurance policies should equal five to seven times your
annual income. If you’re the primary salary earner, you should have
coverage that equals six to 10 times your annual income; and if you’re a
young adult with a mortgage and children, your coverage should be closer
to the high end of the range.
Why is this ratio so high? If your household’s income
is $70,000 a year and your family has $200,000 worth of life insurance,
almost three times your annual earnings, how far would that money go?
There are numerous expenses that your spouse would have to cover if you
die: the $150,000 mortgage, childcare, education, car loans and funeral
expenses. The death benefit could quickly disappear.
When considering how much insurance to purchase, you
should think about how much it would cost to maintain your family’s
standard of living if you were to die.
Company credibility
As a consumer, you have access to some protection if
your life insurance company goes bankrupt. The Canadian Life and Health
Insurance Compensation Corporation (CLHIC) is a federally incorporated,
non-profit company that guarantees the payment of benefits (up to
specific limits) to policyholders when a company is unable to pay its
debts.
To check up on the health of the insurance companies,
annual financial reports and periodicals like the Stone & Cox
publication 2007 Canadian Life & Financial Services Directory are
helpful. The number of life insurance policies a company has in force is
one good indicator of their financial strength.
Logging on to several insurance companies’ websites
is a great way to find out what they’re offering.
Advisor expertise
When important changes happen in your life - starting
a new job, the birth of a child, buying a home, approaching retirement -
your needs change. Those life events are a perfect time to contact an
insurance advisor to help you re-evaluate your needs.
Advisors can
• outline the many insurance choices available and
explain their features.
• send you updates about the latest products and
services on the market.
• customize a financial strategy designed to meet
your specific financial goals.
It’s a good idea to have concerns and questions
prepared before that first contact in order to have a valuable meeting
with your advisor. Make sure you don’t sign anything until you’re
absolutely certain you’re getting exactly what you want.
Life insurance is a key component of a personal
financial plan. It’s investing in security so that your loved ones can
complete their hopes and dreams.
For more information , please contact Yusuf
Abdulmenan at 416-948-2163 or 416-493-9560 ext. 2309.
© Sun Life Assurance Company of Canada 2007.
