Limited By Your RSP? Consider Universal Life.

November 03, 2009 By: The Well-Heeled Category: Estate Planning, Insurance Strategies

A universal life contract is a financial instrument that allows you to combine the benefits of life insurance and investment, once your insurance needs have been clearly established.


Who Can Benefit From Such A Product?

  1. Anyone who makes the maximum contribution to an RSP and is looking for an additional tax-sheltered vehicle where investments can grow.
  2. Anyone who has fixed-income securities in a taxable account and wants to shelter the earnings on these investments from taxes.
  3. Anyone who has taxable assets and wishes to minimize taxes payable by his or her estate.
  4. Anyone whose investments are held by his or her own company.
  5. Anyone who wants to build retirement capital other than in an RSP.
  6. Anyone who does not expect to spend all of his or her savings, and wishes to maximize their value when they are passed on.
  7. Anyone whose estate is likely to be heavily taxed.

The Principle

  1. Each policy is unique: you determine how you will use the insurance and investment options, depending on your own personal needs.
  2. Minimum premium: the minimum amount required to cover the cost of the life insurance and related charges; the premium and administrative charges are guaranteed for life.
  3. Maximum premium: the maximum you may invest in your policy. This limit is determined by your age, gender and health and the amount of life insurance coverage you opt for.
  4. Choose from many investment options: your returns can be based on ordinary term deposits or on various indexes, including the SM (Canadian bonds), TSE 100 (Canadian stocks), S&P 500 (US stocks) or MS (international stocks).
  5. Funds deposited in a universal life account enjoy tax-sheltered growth and a measure of protection against potential creditors.

What Happens During Your Lifetime?

At the moment you choose, you may borrow money from a financial institution, leaving your universal life policy as collateral. There will be no capital or interest payments to make, or income taxes to pay. Upon your death, the institution will repay itself from your policy, leaving the balance to your heirs.

What Happens When You Die?

Your heirs receive, absolutely tax free:

  1. The death benefit provided by your life insurance contract, plus
  2. The funds accumulated under the investment component of the contract.