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.

A mounting chorus is urging the Bank of Canada (BoC) to intervene in currency markets to brake the loonie’s rise. The last time the Bank intervened unilaterally in foreign exchange markets was in September 1998. Since then, global trade has exploded and so has foreign exchange turnover. According to the Bank of International Settlement, average daily turnover in global foreign exchange markets stands at more than $US 3.1 trillion currently (up from $1.4 trillion in 1998). Of this amount, more than $100 billion is traded in Canadian dollars. Given these volumes, we are sceptical that unilateral action by the BoC would be the appropriate approach. In our opinion, CAD strength is a reflection of USD weakness and the lack of alternatives for investors. Indeed, with most Asian countries pegged some way or another to the USD, the brunt of the greenback’s depreciation is borne by the more traditional free-floating currencies. Many of Asia’s currencies are currently undervalued by roughly 40% relative to their respective purchasing power parity value. International coordination will need to take place at some point to address this situation and avoid the threat of protectionism.

Mounir R. El-Ayari, CIM, FCSI, C.h. P. Strategic Wealth
Investment Advisor
Associate Portfolio Manager
e-mail: mounir.el-ayari@nbf.ca

By: Rita Nazareth
Bloomberg.com

Oct. 28 (Bloomberg) — U.S. stocks fell, extending a global slump, as an unexpected decrease in new-home sales added to concern the seven-month rally in equities outpaced prospects for economic growth. The dollar rose against most major currencies and Treasuries gained, while oil and metals fell.

Alcoa Inc., General Electric Co. and Caterpillar Inc. dropped at least 2.5 percent to lead declines in the Dow Jones Industrial Average. Lennar Corp. and D.R. Horton Inc. tumbled more than 5 percent after the Commerce Department said sales of new homes fell 3.6 percent in September. European and Asian shares slid as companies from SAP AG to ArcelorMittal and Canon Inc. reported disappointing earnings.

The Standard & Poor’s 500 Index retreated 1.1 percent to 1,051.61 at 1:37 p.m. in New York. The Dow slipped 48.14 points, or 0.5 percent, to 9,834.03. The MSCI World Index of 23 developed nations lost 1.6 percent.

“The stock market is due for a correction,” said Hank Smith, who helps oversee $5.5 billion as chief investment officer of Haverford Trust Co. in Radnor, Pennsylvania. “Even though the economy has bottomed out, we’re still getting some disappointing numbers now and then. On the earnings front, a good deal of growth came in from cost cutting. Investors are using all that as an excuse to pull back.”

The S&P 500 has rallied 56 percent from a 12-year low on March 9 amid growing confidence a U.S. economic recovery will drive profit growth. The benchmark for U.S. equities has slipped 3.5 percent from this year’s high on Oct. 19 on speculation the seven-month rally has outpaced the prospects for earnings and economic growth.

This morning, major news outlets are stressing the fact that China’s Shanghai Composite Index slumped as much as 5.1% overnight, extending the index drop from a 2009 high to more than 20%, the common definition of a bear market.

But this volatility should not come as a surprise to investors. The basic risk-return relationship also applies in the case of China. If you want higher returns, you will have to accept more risk. And the Chinese stock market did deliver returns. Since the beginning of the year, Chinese benchmarks lead nearly every other major index around the planet.

But this performance has a price. Since 2002, the Chinese indexes are also among the most volatile. The annualized volatility reaches 33.75 in the case of the Shanghai “B” index (open to foreigners) and 27.6% for the “A” index (locals only).

In fact, it should be kept in mind that the new bear market is the sixth one since 2002. This amounts to a bear market almost every year. In the current context of highly stimulative monetary and fiscal policy, I see the current correction in Chinese equities as a consolidation rather than a reversal of fortune.

Mounir R. El-Ayari, CIM, FCSI, C.h. P. Strategic Wealth
Investment Advisor
Associate Portfolio Manager
e-mail: mounir.el-ayari@nbf.ca