UNIVERSAL LIFE OPTIONS

A) CHANGE DEATH BENEFIT

Increase or decrease face amount of insurance

1. Level Death Benefit
2. Death Benefit + Cumulative Deposits
3. Indexed Death Benefit
4. Level Death Benefit + Account Value
   

B) CHANGE LIFE INSURED

• Substitute one life insured for another
  

C) ADD ADDITIONAL LIVES INSURED

• Insure more people under the contract
  

D) PAY COST OF INSURANCE BASED UPON YEARLY TERM OR LEVEL TERM RATES

Type of Insurance Premiums: policy owner can choose at time of issue whether premiums based on:

a) yearly term rates that increase each year

b) level term rates which remain constant for life

YEARLY TERM RATES: premiums based upon probability of death in year for attained age of life insurance, premiums increase each year

LEVEL TERM RATES: fixed annual or monthly amounts, Present Value at date of issue of policy = policy value of annual expected death benefits and operating margins less investment income of policy

E) SELECT A GUARANTEED OR VARIABLE COST OF INSURANCE

PREMIUM FLEXIBILITY 4 CONSTRAINTS

a) Premium deposits and accrued investment income must cover all expenses and deductions
b) Premium deposits accrued investment income less expenses and deductions cannot exceed the maximum amount allowable in exempt life contract under exempt policy test in ITA
c) Specified minimum premium for 1st year or 1st few years, this minimum premium on a cumulative basis must be paid during the qualifying period
d) Any alterations made to the planned premium pattern will impact performance of UL plan

F) CHOOSE FROM ACCUMULATION FUNDS & OTHER ACCOUNTS

• policy owner can choose investment combinations using the following products:
  

  1) Guaranteed Term Deposits
  2) Funds That Track Specific Market Indices
  3) Mutual Funds

G) DECIDE BETWEEN GUARANTEED OR VARIABLE INVESTMENT RETURN ON ACCUMULATION FUNDS AND OTHER ACCOUNTS

Account Value: Sum of all gross values of investment accounts within policy, including investment income after allowing for current markets deductions and expenses

NON EXEMPT & SIDE FUNDS

• extra cash deposits or cash accumulated that exceed amount allowable under a tax exempt UL policy
  

  a) Extra cash deposited into side fund
  b) Deposited into exempt portion of UL policy
  c) Refunded to policy owner
  

• 1st 2 options the investments are non exempt for tax, income and realized capital gains must be reported annually by policy owner
  

SIDE FUND: external to policy, it is not included into death benefit of plan, does not affect the net amount at risk, and deposits to this fund are not usually subject to provincial premium tax

• investments into a non exempt portion of base policy are part of the death benefit
  
• they may be subject to premium tax and taken into consideration in computing amount of risk in policy for monthly mortality deduction calculations
  
• several UL contracts offer their long term policy owners an investment bonus of up to 1.00% to 1.50% per annum after 10-20 years
  
• Cash Surrender Value: current account value less outstanding policy loans and surrender charges
  
• CSV of policy is available to policy owner by way of policy loan from insurer or as a recovery upon policy contribution
  

EXEMPT INVESTMENTS: investments included in accumulating fund of an exempt policy, on exempt side typically find daily interest or T-bill savings accounts, guaranteed term deposits and interest bearing linked assets

LINKED ACCOUNTS: performances of these accounts are tied to an outside indicator and their net account value can fluctuate up or down with the indicator, returns on linked accounts almost never guaranteed

NON EXEMPT FUNDS: investments included in the accumulating fund of a non-exempt policy or non exempt side fund, can offer all of same investments that exempt portion does with added element of segregated funds and unlike exempt investments non exempt investments produce taxable income

H) MAKE ANY AMOUNT OF CONTRIBUTIONS AS LONG AS THERE IS A MINIMUM CASH VALUE

1. Change amount, frequency, timing and duration of deposits subject to restrictions of Income Tax Act and contract

2. Policyholder is always required to maintain enough value in the policy to pay all insurance costs and other expenses.

This material is for information purposes only and should not be construed as legal or tax advice. Every effort has been made to ensure its accuracy, but errors and omissions are possible. Individual circumstances may vary and specific legal and tax advice is recommended. Future tax changes and market conditions may affect this information.

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