Financial terminology is crystal clear for those folks who work in and are exposed to the financial industry on a regular basis; everyone else finds the definitions and implications difficult to understand.  “Universal” and “Whole Life” insurance is not exempt from this reality. 

What you need to Know

Whole Life

Whole Life Insurance is also called ‘Permanent’ as it provides a lifetime of coverage. As long as the premiums are paid, the insurance stays in-place permanently.  At the beginning of the Whole Life policy the death benefit and premiums are usually guaranteed, and remain fixed.

Whole Life Insurance policies pay the death benefit when the insured person passes away.  They may also potentially accumulate additional cash value inside of the policy. The invested premiums usually fund the death benefit, and whenever excess premiums occur, they are then invested by the insurance company on your behalf and create a Cash Value.

Typically, Whole Life insurance is less expensive to purchase than Universal Life, and is the ideal option for those people who desire level premiums and a predetermined death benefit.

Universal Life

Universal Life Insurance is a slightly more complicated financial solution as it is considered both a Whole Life policy and a tax-preferred savings account, combined together.  At the beginning the death benefit is set, and then any premium payments above what the life insurance policy requires may be used to increase the death benefit or be held in a tax-preferred savings account.

This last point is important for those people who may have maximized allowed RRSP contributions and are looking for additional ways to shelter income and wealth from taxation. 

It is important to note that the regulations for Universal Life are changing and becoming more complicated for favourable tax treatment for heirs and business owners.

The Bottom Line

To understand the differences between Whole Life and Universal Life Insurances be sure to consult with your Advisor, especially if you have significant wealth to transfer to your heirs or you own a business.

Insurance products and services are provided through Davison & Orser Financial Advisors. This material is provided for general information and is subject to change without notice. Every effort has been made to compile this material from reliable sources however no warranty can be made as to its accuracy or completeness. Before acting on any of the above, please make sure to see a professional advisor for individual financial advice based on your personal circumstances.