around a year ago I talked about the good and bad of universal life insurance and I get a lot of great feedback asking to share more so in today's video I want to share five things that you must know when you look into a universal life insurance so at the time when you're ready you can make the best judgment if this is right for you [Music] hey this is Thomas we have the most Vancouver life insurance Five Dot Google reviews and this channel is to help Canadians build tax-free wealth for their retirement and to protect you and your family using solutions that Canadian Banks don't want you to know about so enjoy what I have for you and let's get started let's briefly recap what universal life insurance is universal life insurance is a form of permanent life insurance that is ideal for people who wants flexibility it's also ideal for young people who are a bit tight on budget but still want insurance as term insurance will expire and become Ultra expensive when you choose to renew at age of 50 or 60. it contains two parts there is a death benefit component and there's the investment component for the depth components as tax-free lump sum payment to the beneficiary should the insurer pass away and for the investment component there has a wide degree of Freedom where you can choose how to invest from guaranteed term deposit to stock market index fund it depends on your risk tolerance and because universal life has a very high transparency you know exactly the cost of insurance and how much you put into the investment especially before 2009 before tfsa was introduced a lot of investors loves it because the money in the insurance plan can grow tax shelter and if done right it can be tax-free too when they withdraw the saving from it alright now there are five things we need to watch out for before committing to a universal life insurance number one what do you want in an insurance policy when considering life insurance is always important to understand why you're looking for it in the first place are you looking to cover a mortgage leave a legacy for the Next Generation or pay your final tax bill many Canadians may not realize that with the right Insurance planning you can actually accomplish multiple goals at once for example if you're business owner you might be looking for a way to protect your company while also utilizing Tech shelter features to save more for the company all these factors will play a role in determining how to set up your plans it's also important to keep in mind that despite the additional benefits that life insurance may offer the primary purpose is protection and that protection comes at a cost however when done right your insurance can become asset class meaning you'll receive more than what you put in alright next is the cost of insurance there are two choices in terms of the cost structure you can choose between level or yearly renewable term level means the cost of the insurance is fixed from now until the day that you pass away ylt means that every year they will increase the cost of insurance as we are getting older the beauty of royalty is when we are young the cost of insurance is much cheaper compared to a level plan let me give you an example John is 30 years old married he's interested in Universal Life Insurance because he wasn't sure about his upcoming expenses so he wants the flexibility for level cost universal life insurance the cost for five hundred thousand dollars is around three hundred dollars per month where if John choses ylt the cost starts at 60 dollars per month for its current age and the year after is around 62 dollars per month and the year after maybe a 65 dollars per month you yes the cost of insurance keeps increasing but takes John to reach age of 60 to age of 65 to start paying that 300 for the cost of insurance so which one should you choose level or warranty using John's case if his budget is 400 per month and decides to do level cost universal life at age of 65 he will have around 140 000 in cash value and 252 000 at the age of 75 based on a 5 return on his Investments but if John chooses ylt the cost of insurance is 60 dollars and he can use the remaining 340 dollars for Investments and therefore he will have around four hundred thousand dollars at age of 65 and 700 000 at age of 75. so it really depending on your age and how much money you like to invest if you are young and have investment knowledge while he will be a better option that's because we can leverage the youth to get the lowest cost possible and invest the difference into the markets where if you're hitting your 50s or 60s and want to lock down the cost instead of increasing it over the years the level will be a better option also the downside royalty is that if you don't invest enough into your insurance one day the cost over the insurance side should be higher than the investment side and I do see a lot of cases like that the agent just so the client a ylt universal life but put all the investment into a saving account as a result when the client is getting old the return from the investment cannot cover the cost since universal life insurance is a permanent life insurance you pretty much need to keep paying until the day that you die yes you can access the premium holiday options which you can use the cash file to pay for it but there's still the risk of policy labs when there's not enough money in there and yes for level premium you can further upgrade to pay off in 10 15 or 20 years meaning after 20 years you're done with the payment and you own a permanent life insurance policy however I usually won't recommend it as there's a huge cost I rather use that money to invest and keep it in your own Pockets the beauty of universal life insurance is that you can control how much you want to put into the plan looking back at John's case he can choose to put in 200 this month and when it gets a bonus or tax return he can choose to put it in two thousand dollars next month now you might wonder why you should pay more than the minimum amount possible well that's a good reason for it think of this universal life insurance like a coffee mug you can put water tea or coffee which represent the savings investment inside the insurance policy the money inside this cup is tax shelter which means that it is protected from the CRA and just like how the size of a cup can be tall Grand Day of NT the size of the insurance coverage can be adjusted to suit your needs the bigger the cup the more tax-free money you have in your insurance policy if you look at a tax-free savings account you can only save a limited amount of money without paying taxes every year the amount you can contribute to your tfsa increases by 6 500 and if you're a high income earner you will likely reach stack contribution limit quickly or if you're new to the country and don't have a lot of tax-free Saving Room but have a lot of saving you might want to consider universal life insurance as a way to invest without having the CLA come after you this is why your universal life insurance is often referred to as the rich man tax free savings account it allows you to create additional tax shelter savings bucket beside your tax receiving or rrsp this is especially useful for business owners who want to save more money in the corporation while minimizing their tax burden as there's no corporate own tfsa alright let's move on to number three which is the death benefit pales nobody likes to think of their death but this is when the policy is most useful when it comes to the death payout of a life insurance policy there are mainly two choices to consider death benefit only or death benefit plus cash value with a death benefit only option the payout is the agreed face amount upon the insurance debt on the other hand with a death benefit Plus cash value options the policyholder might have to pay slightly more per month usually around two to five dollars but in return They will receive both the death benefit and the money saved inside the plan tax-free this means that if the person passes away that beneficiary will receive both the death benefits and the cash value accumulated in the policy providing them with the additional Financial Security and it also solves the inflation problem okay now we are on to the number four things that you need to watch out for which is the investment choices in return now for the investment portion you have a variety of things that you can do you can use it for savings term deposit and fixed income or equity-based funds as long as the insurance company has it you can buy it your range of yearly return per year can be varied from between 1 to 20 percent depending on your risk and market performance with the current interest environment GIC is around five percent now which is not bad however is this feasible for long term given the interest rate will not be this high for the next 10 years on the other hand having Equity Fund like an index fund long term it should give you a great return but what if the market is down at a time that you need the money therefore it is very important to my next point the insurance company and the advisor him or herself by evaluating a life insurance company and the advisor who will help you out with the process there are several factors to consider one important factor is both the company and the advisor's track record with Investments it is important to determine if they have a history of making Sound Investment decisions additionally it's essential to ensure that the advisor has compared at least two to free insurance companies to identify which one offers better performance in terms of customer insurance and consistency of investment return furthermore it is important to consider how easy it is to access your account balance and statements we want to review your policy at least semi-annual basis so you want an advisor who conducts regular reviews with you also if the policy is set on a yearly renewable term it is important to consider the projections when you stop contributing and if there are enough funds to back up the plan a lot of insurance advice out there may say universal life is the Silver Bullet for everything well just like any other Investments is not for everybody it has downsides as well if you compare it to a whole life insurance there's a lot of variables on the investment side in the universal life insurance especially if you're choosing ylt because universal life insurance is Market dependent it can fluctuate with the market and drop just when you need the money the most think back in 2008 or 2022 when the stock market dropped around 20 and most of the investment inside universal life insurance policy did as well if you compare that to whole life insurance even in a down cycle they still pay out at five to six percent and for most of the time universal life requires lifetime contribution so if you are planning for retirement this is also going to take in effect to wrap it all up if you're thinking about universal life insurance there are a couple of things to consider in advance do you want to choose wild tea or level what kind of investment would you like to choose and more importantly will your insurance advisor going to review the investment performance with you from time to time or you have those agents that never come back to review I personally have both whole life insurance or universal life insurance coverage because then I can have the best of both worlds but I do find Universal Life Insurance especially beneficial if you're young and looking for asset accumulation it's transparent then you're more in control alright as usual I hope you learned something from this video please share this video with your friends or family who are looking for insurance and comment below if you have any questions .
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