Universal Life Insurance, taxes and saving.

Universal Life Insurance, taxes and saving.

 Universal life insurance provides several advantages to Canadians with regards to taxes. The following are four key tax advantages of universal life insurance.

1. Your savings within the policy grow tax-sheltered. Each universal life policy has a minimum and maximum premium. The minimum premium generally covers the cost of insurance and any administrative charges. When we overfund the policy beyond the minimum premium, that creates an accumulation fund which grows on a tax-sheltered basis.  Tax-sheltered growth facilitates a better compounding of money. Most insurance companies have a range of investment options that the insured can choose from. Certain companies have a few hundred different types of funds options to choose from.

2. Tax-free lump-sum death benefit. Any death benefit, whether it is level or an increasing death benefit, is paid out to the beneficiary tax-free. There could be several benefits of receiving a tax-free lump-sum benefit.

3. Premiums withdrawn from the accumulation fund are paid with pre-tax dollars. When the applicant uses the policy accumulation fund to offset future premiums, the premiums are being paid with pre-tax dollars. The money or savings or the accumulation fund within the universal life coverage grows on a tax-sheltered basis. If the fund never leaves the policy and is used to offset future premiums, there are no tax implications.

4. Universal life contributions do not impact RSP or tax-free savings account ( TFSA)  contribution limits. Universal life contributions are stand-alone contributions that do not impact other retirement or tax-free savings account contribution limits.

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