Universal life insurance combines an investment component within a life insurance policy. They are often advertised as a tax shelter or as the best way to save on taxes.

Policyholders are able to choose investments in the policy. Premiums are flexible within the minimums and maximums stated in the contract. The Income Tax Act mandates a maximum investment return. Any gains above that are taxable. If only the minimum premium is paid it is difficult for the investment portion to make any gains.

There are many fees that policyholders must pay. Also within the first ten years of the policy access to invested funds is severely restricted. In all cases a person will pay more than they invested to cancel the policy or get back their investment.

Universal life insurance may be suited to taxpayers who have already maxed out their RRSP or who will have challenges paying tax on the sale of a second property or business. However, objective financial experts agree that investments and life insurance should be kept separate.


Also with the arrival of the Tax Free Savings Plan universal life’s usefulness as a way to beat the taxman will be greatly diminished.

DiscussEconomics will be releasing a full pros vs. cons article pertaining to why people should avoid universal life insurance salespeople so stay tuned.