Did You Know?
Advantages of Universal Life Insurance Solutions for Children

Did you know that in Canada Universal Life (UL) contracts (and all cash value policies) have a limit on how much cash can grow inside them on a tax sheltered basis?

The ceiling is the Maximum Tax Actuarial Reserve, commonly called MTAR. What’s important to understand when using UL to insure children is that there is a very large gap between MTAR and the minimum amount of money required to cover the cost of insurance, premium taxes and administration expenses.

Translation: there’s a lot of money that can be deposited and grown in the tax sheltered environment of a UL contract!

For parents or grandparents who have a high value for control, UL contracts allow the owner(s) to control:

• the type of insurance coverage (as per insurance company limitations)
• the amount of money to be invested over the minimum required
• the investment vehicles chosen
• if or when to make changes to investment vehicles
• if or when periodic lump sum deposits are made
• if or when a “premium vacation” is taken

Unlike with term life or whole life solutions UL offers additional advantages like:

• the possibility to pay future premiums or “take a premium vacations” by using funds that have grown in the contract on a tax sheltered basis
• bonus payments (e.g. like loyalty bonuses) when certain conditions are met

What’s the downside of insuring children with UL?

To take maximum advantage of all of the features and flexibility UL contract owners need to be actively involved in the management of it. They need to pay attention to:

1. investment performance
2. gap between MTAR and fund values
3. opportunities for periodic lump sum deposits

Depending on the investments selected in the UL contract, the amount of exposure to market volatility can be the same as for the owner’s regular investment portfolio. Alternatively, if a contract has no fund value because it is “being minimally funded” then the owner needs to be very aware of the 250% rule which comes into effect in the policy’s 10th year. Also, be sure to thoroughly understand the insurers Surrender Charge scale.

In summary, insurance solutions on children are varied and require that you are well aware of your client’s objectives and ability to pay.

Cheers, Helena

p.s. There are still some seats available for September 15th Insurance Know-How 1 day intensive in Vancouver! Register now at www.insuranceknowhow.ca/life-insurance-training.

p.s.s. Insurance Know-How training is now C.E. approved for up to 7 C.E. credits through Canada’s new and rigorous approval process with the CLU Institute.

p.s.s.s. Watch for new Insurance Know-How COACHING packages coming online in the next few weeks – these services will help you expand your insurance business!

Tags: insuring children, MTAR, universal life

This entry was posted on Wednesday, September 1st, 2010 at 9:00 am |