Compare Universal Life Insurance 2021

Browse Life Insurance

Name	Product	Types of Insurance	Coverage Range	Issue Ages	Medical Exam Required	Province Availability
PolicyAdvisor		Whole Life, Term Life, Universal, No Medical	$25,000 - $5,000,000	18 - 75 years old	No	Alberta, Manitoba, Ontario	PolicyAdvisor is a digital life insurance brokerage that has partnerships with 20 insurers in Canada.	Get a quote More Info	Compare	loading Fetching your data...

loading

Compare up to 4 providers

Universal life insurance is a permanent policy that doubles as an investment product. It works in a similar way to other permanent policies — but it’s unique in terms of its flexibility and the way the cash value grows.

What is universal life insurance?

Universal life insurance is a permanent policy with a savings component. Along with offering lifelong coverage, it builds cash value (also called the cash surrender value, or CSV) over time and often gives you the freedom to adjust your premium and death benefit.

How does universal life insurance work?

While each universal life insurance policy will vary in its features, generally you can expect that a portion of your premiums will go towards the death benefit, while another portion is invested to build up the cash value. The cash value grows through accounts that offer a fixed interest rate set by the insurer, interest earned from a chosen investment portfolio, or returns tied to the performance of a stock index.

Once you’ve accumulated enough cash value, you’ll be able to take out loans against your policy. Eventually, you may also be able to use the cash value to cover your premiums.

With universal life insurance, you’ll likely have the option to adjust your premium and death benefit to suit your needs and financial situation.

When you die, your beneficiaries will receive a death benefit equal to the face value of your policy. You could have the choice of multiple beneficiaries, and decide how you’d like the money to be allocated between each.

Pros and cons of universal life insurance

Pros

Lifelong coverage. Your policy stays in force for your entire life, as long as you pay your premiums.
Cash value growth. A portion of your premium goes into an account that earns interest over time.
Flexible premiums. This policy usually allows you to change your premium and coverage amount — making it ideal for those who foresee income fluctuations or major life changes.
Tax advantages. The interest earned on the cash value portion is tax-deferred, and the death benefit paid out to your beneficiaries is tax-free.

Cons

Expensive. Universal life insurance is much more expensive than a temporary term life policy early on in life. However, it becomes much more cost effective as you get older.
Limit on returns. Your insurer may cap your cash value returns or how much you can invest based on tax laws, so ask about things like the “participation rate” or contribution limits before signing up
Requires monitoring. You’ll need to make sure your cash value doesn’t dip too low, or you could lose your coverage.
Not always the best investment. Interest rates tend to be conservative. If investing is your priority, you might be better off investing in a mutual fund, RRSP or TFSA.

Is universal life insurance right for me?

Universal life insurance has its perks, like flexible premiums and the ability to use your policy’s cash value to cover premiums later in life. But thanks to its investment component, it requires a higher risk tolerance and a more hands-on approach than term or whole life insurance.

Since it’s a complicated product, it’s best suited to those with complex financial needs. This may include parents with special needs children, or wealthy individuals who want to treat their life insurance policy as an estate planning tool after maxing out more traditional savings options.

Traditional universal life insurance vs. indexed universal life insurance

Indexed universal life insurance (IUL) differs from more traditional universal life insurance (UL) in one significant way: IUL allows you to tie your policy’s cash value to a market index, like the S&P 500.

The market index you attach your policy’s cash value to is often capped, which limits how much you can earn with IUL. If the S&P index is capped at 4%, it means your IUL cash value can earn up to 4% of what the S&P index earns only.

	Traditional life insurance (UL)	Indexed universal life insurance (IUL)
Permanent	Yes	Yes
Builds cash value	Yes	Yes
Policy options — death benefit and premiums	Flexible	Flexible
Cash value rates	Fixed by provider	Tied to market index
Potential for investment growth	Conservative, stable	Assertive, fluctuating

What about variable universal life insurance?

This policy is a hybrid product with elements of variable and universal life insurance. The exact set of features of this hybrid policy will vary between companies. Some common distinctions made about variable universal life insurance policies include having flexible premiums, and a greater ability to diversify and personalize your investments.

While this product offers a high potential for return, it also comes with a higher degree of risk — making it best for high-income earners with prior investment experience.

Alternatives to universal life

If you’re interested in a permanent policy, consider whole life insurance. It offers similar benefits, like lifelong protection and the potential to build cash value. The cash value grows at a fixed rate, and the premiums stay the same for the life of the policy.

If you only need life insurance for a set period of time, look into term life insurance. This policy is cheaper, and provides protection for a specified term — like 10, 15, 20, 25 or 30 years or to a particular age, like 65. While it doesn’t have an investment component, it offers predictable premiums for the length of your term. If you die during the term, your beneficiaries will receive a death benefit. And if you outlive your policy, your coverage will expire.

Bottom line

Universal life insurance is a permanent policy that allows you to adjust your premiums and coverage amount and accumulate cash value. But it’s expensive, and you’ll need to stay on top of your policy’s available cash value to avoid losing your coverage.

If you’re not sure that universal life insurance is right for you, learn more about other life insurance options.

Frequently asked questions

Thank you for your feedback!

Katia Iervasi

Katia Iervasi is a staff writer who hails from Australia and now calls New York home. Her writing and analysis has been featured on sites like Forbes, Best Company and Financial Advisor around the world. Armed with a BA in Communication and a journalistic eye for detail, she navigates insurance and finance topics for Finder, so you can splash your cash smartly (and be a pro when the subject pops up at dinner parties).

More guides on Finder

Buying a car vs. driving a Zipcar in Canada
Which option is best for you depends on where you live and how often you need to drive.
Should I buy a used luxury car?
Weigh the pros and cons to learn how to decide if buying a luxury car is right for you.
Revolut alternatives in Canada
Looking for alternatives to Revolut? These challenger banks and financial apps may be just what you need.
How to master international stock trading with currency hedging
Protect your international stock portfolio from currency fluctuations by hedging your investments.
How to invest in renewables
Investing in renewable energy isn’t just good for the planet—it can be good for your portfolio too.
10 ways to invest for social justice
Put your money where your mouth is by rethinking how you invest to support BIPOC, LGBTQ+ and other marginalized communities.
Investing in pipeline stocks
Benefits and risks to consider before you invest in pipeline stocks.
Investing in pharmaceutical stocks
Benefits and drawbacks to consider before you invest in pharma stocks.
How to invest $1 million
Here are the top 5 ways you should invest $1 million.
Retirement planning
Get actionable tips on how to prepare for your ideal retirement.

Ask an Expert

Click here to cancel reply.

You must be logged in to post a comment.

Universal Life Insurance

A permanent life insurance policy that offers flexibility and the potential to build cash value through investments.