Universal Life Accounts and TFSAs
The Universal Life Accounts that Canadians hold are insurance policies that allow Canadians to take advantage of higher returns within the financial market. Most individuals who have Universal Life Accounts are the same individuals going after TFSAs because they want their money to grow and grow. And those with TFSAs are finding that they can acquire even more tax savings by opening up a Universal Life Account.
Universal Life Accounts are insurance that has cash value. These are very beneficial accounts in that an individual’s premium may be taken from their cash value if they don’t make their premium payment. This keeps the policy from lapsing. As for how the policy gains cash value, any payments made above the premium are credited to the cash value. The cash value then gains interest each month. The insurer will determine the interest that is credited to the account, but it is sometimes based on what the financial index or another interest rate index.
Similarities between Universal Life Accounts and TFSAs
There are some similarities between Universal Life Accounts and TFSAs, it is the tax benefits. This is one reason why you find individuals going for both of these accounts. Individuals receive life insurance and a sort of savings plan through their Universal Life Account and they also receive quite the savings plan via their TFSAs. These are great monetary vehicles.
As for the tax benefits, individuals are able to access their cash without paying tax. There are some limited cases in which the policyholder can access their money tax free. But with a TFSA, the accountholder can access their money tax free all of the time. The contributions are tax free and the withdrawals are tax free as well. This allows an individual to keep more money in their pocket. Both accounts place more money within the pockets of Canadians with these accounts.
Tax benefits
The tax benefits of TFSAs are quite obvious. Universal Life Accounts provide an individual with the ability to purchase life insurance in a tax-advantaged way. In the first years of the contract, the premium amount exceeds the cost of the insurance charges. The difference between the two amounts will be tax-deferred during the life of the policy. If an individual holds the policy until their death, then the cash value will not be taxed at all. Since you pay tax on investment growth anyway, it is actually rather rare that an individual has to pay tax on these policies. They usually do escape taxation.
Both Universal Life Accounts and TFSAs offer great ways to make money grow and to save money on taxes. That is why it is a good idea to have both types of accounts because you are covering several areas of your life by having these accounts. You can gain cash value in both accounts and one of them provides you with life insurance. And they both offer you various tax benefits, saving you even more money so that you can keep it in your wallet.
Canadians need to save for many different purposes over their lifetimes. Reducing taxes on savings can help. That’s why the Government has introduced a new Tax-Free Savings Account (TFSA). It’s likely the single most important personal savings vehicle since the introduction of the Registered Retirement Savings Plan (RRSP).
The TFSA will allow Canadians to set money aside in eligible investment vehicles and watch those savings grow tax-free throughout their lifetimes. TFSA savings can be used to purchase a new car, renovate a house, start a small business or take a family vacation. With the TFSA Canadians from all income levels and all walks of life can benefit.
Download your Free Special Independent Review of the TFSA at: http://TaxFreeSavingsAccountInfo.com/
Universal Life Accounts FAQ:
Question: How difficult is it to cancel a Universal Life Insurance policy?
Answer: All insurance contracts are what are known as unilateral contracts (A one way contract). As long as you keep paying into it the company has to abide by what is in the policy, however they can’t force you to keep it. There would likely be some paperwork that requires a signature to cancel it. Aside from the Surrender Charges there shouldn’t be any hidden fees, however all the ‘fees’ to cancel will be outlined in your policy that you have.
Question: Saving money and life insurance?
My husband and I are shopping for life insurance, and are considering Universal Life. The reason being: the cash value claims to be safe from creditors and collections. We do want to save money that earns interest, but can’t do it through a banks because of the many debts that we owe, collections can seize your bank account (they’ve done it to us before). Term life insurance seems like a waste because if the policy expires, we don’t get the money back, and if we have to renew, the premium will definately go up. Does anyone (please?) have any advice regarding these two MAJOR financial decisions?
Answer: I think you may need a term policy with a RETURN OF PREMIUM feature. It’s basically a term policy but it returns 100% of all paid premiums, (if you’re alive) back to you…after the tem is over. It’s not as expensive as UL or Whole. It gives you the same benefit as term…AND your money back, if you don’t die! (If you do die…your beneficiaries get the entire death benefit.) It will give you the protection you need for you and your family… and something to show for it. (And creditors can’t touch it!)
Question: What two adjustments are usually made to the cash value account in a universal life policy?
1. Cost of the term Insurance protection is charged and current interest earned is credited
2 current interest and insurance premiums are credited.
3 guaranteed interest is earned and premiums are credited
4 excess interest and premium are charged
Answer: The premiums are deposited into the policy’s value. Then, each month the cost of insurance and any expense fees/charges are deducted from the surrender value of the policy. At the same time, the value in the policy earns at a certain percentage rate. On fixed life products, they usually offer a guaranteed rate and a current interest rate.
Question: Does anyone have any information on State Farm’s Universal Life Insurance Policy and borrowing money on it?
I remember a long time ago when signing up for these policies they had mentioned something about them having a savings account or something to that affect that you could borrow money on. Did I miss understand them? If you can borrow money on these how do you go about doing this and what kind of penalties are there?
Answer: Give them a call. They may only allow up to 75% of the cash value to be withdrawn. Then again, they may allow the full amount to be withdrawn. If you choose all of it, you will cancel your insurance. If anything less, there is no tax consequence if the amount withdrawn is less than the total amount of premiums that has been paid up til this point. If, on the other hand, there is more in savings than has been paid in premiums, than anything over the amount paid in premium that is withdrawn IS taxable.
Question: Explain Universal vs Term life Insurance Quotes?
My wife and I just bought a Universal life insurance policy. We each have $100,000 in coverage. After talking to my parents, who are 59 and 58 years old and have term life, we think we are paying too much per month for premiums. Our agent showed us and told how the premiums we pay will partially go into a savings account and collect interest. This looked like a good thing and that is why we went with the Universal coverage. He also told us that the premiums for term would keep going up as we got older.
Answer: The short answer of the difference between universal life and term life is cash value. The advantage of cash value is that the universal life has the ability to grow a tax deferred and probably tax free return (I say “probably” because it is possible to not have the tax free return, but I doubt you would have any problems with that.)
With the cash value, you have the opportunity to keep your life insurance policy for your whole life. I don’t know the length of term for your parent’s policy, but their policy will increase in cost over the years and by about age 70 it will be so expensive they will not be able to keep the policies. Therefore, all the money they paid in term premiums they lose (effectively, they “rented” their insurance for 30 or 40 years instead of “buying” their insurance.)