Financial Planner Insurance

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From life and health coverage to home and auto people spend billions of dollars on insurance per year. Surprisingly, many are yet to discover the full array of benefits insurance products today can offer in personal coverage and financial planning.

As your financial planner would advise you, universal life insurance offers an investment with an insurance component. With the conventional whole life policy, you pay equal premiums for a specific number of years. During the early years of the policy, the chances that you will die are low. Therefore premiums you pay in the early years essentially would exceed the actual cost of covering you. The insurance company reinvest this excess money to cover the growing cost of covering you, as you get older.

With universal life, your financial planner will let you decide the size of premiums and the payment duration based on an assumed rate of return. You will own the cash surrender value of the policy. A financial planner will introduce you to a wide range of investment options to choose from. Some of these options can be savings accounts, GICs and equity indexes.

Flexibility

The flexibility of universal life allows you to choose the premium and the duration of payment that is ideal to your situation. The minimum premium payment level will be sufficient to provide coverage for life. Excess cash after paying the minimum premium can be credited to an investment account of your choosing. This parting of insurance and investment provides for flexible planning opportunities. For example, the policyholder can do without paying premiums for a year or in some cases for the remaining life of the policy if there is sufficient money in the policy to cover the insurance cost under the plan.

Funds paid for a life policy are not tax-deductible, but the investment component grows tax-free. However limitations depending on a formula set by the Income Tax Act will apply on the investment portion.

Tax-Deferred Growth

Your financial planner might encourage you to invest in Universal life policies because you have reached the RRSP tax-free quota. A life policy is an alternate tax-deferred investment. Withdrawals though are not tax-exempt the decision how much to withdraw and when is with the policyholder. Withholding withdrawals until retirement when marginal rates will probably be lower can help minimize taxation.

If the investment element is not used during your lifetime, the accumulated amount can be transferred tax-free to the policy beneficiaries in your will. If you have mentioned the beneficiary on the insurance policy itself, probate and executor fees can be avoided.