Dan Allen compares Whole Life and Universal Life insurance in Canada. Whole Life offers fixed premiums and guaranteed cash value since 1847. Universal Life, introduced in the 1980s, lets you choose investments but you bear the risk if they underperform.
Is if you have a need for life insurance, work with a licensed life insurance advisor and ask the right question. Tell them what your objectives are and then allow them to make some suggestions and then clearly understand the differences between even that Whole Life or that Universal life product so that it ends up being the best fit for you and your objectives.
What is the difference of Universal Life and Whole Life insurance? While similar in some aspects, Universal Life and Whole Life have some fundamental differences and that's what I'm going to speak to today.
Both of those types of insurance fall into the permanent life insurance category. Unlike term insurance where.
The life company guarantees a death benefit for a specific term as long as you pay the premiums, Permanent life is for a lifetime.
Now like I mentioned, I'm going to just speak to the fundamental differences, not all the variables. Because both of these types of insurance have lots of variables within themselves. For example, Whole life, you could have participating whole life insurance policy and you could have a non participating whole life insurance policy. So both of these types of permanent life insurance have lots of variables. So what I'm going to encourage you to do is if you have a need for life insurance, work with a licensed life insurance advisor and ask the right question. Tell them what your objectives are and then allow them to make some suggestions and then clearly understand the differences between even that Whole Life or that Universal Life product so that it ends up being the best fit for you and your objectives. So that is something I wanted to share with you. Hi, my name is Dan Allen and I'm with Ascended Financial and I am a licensed life insurance agent. So what are the fundamental differences between Universal Life and Whole Life? Well, to have that conversation today, I thought I would start with Whole Life because it's been here since 1847 in Canada. So that's longer than you or I have been alive. So what are the key attributes of Whole Life that I wanted to mention in this discussion? Well, with Whole Life, the thing that is so fundamentally key about that is that it's consistent, that gives you certainty, your premiums are fixed, they can never go up, they can go down depending on how that whole life policy is structured. And there is guaranteed cash value accumulation. So those are the key attributes that I wanted to bring up related to whole life Again, consistency, certainty, fixed premiums that can never go up and a guaranteed cash value accumulation.
Now the other huge attribute of Whole Life that I want to mention was, and for you to understand is that with Whole Life the life company has a risk and not you. All the risk lies with the life company, you're only obliged to make your premium payments. So for the death benefit, they're at risk. For the guaranteed cash value accumulation, they're at risk and they're very good at doing that. These companies have been around for a long time and they know how to meet the contractual.
Agreements that are in place with the policy owners. So they will do that. They will do that very well. So those are the key things about Whole Life that I wanted to share and I really want to end with. With that particular product, the life company takes the risk. Now, let's talk about Universal Life. Now, Universal Life came into Canada in the 80s, so it hasn't been around as long. And what are some of the key attributes about Universal Life? Well, I think to explain it well is as you pay your premiums. And yes, there will be premiums. It'll be a minimum amount of premiums you have to pay for a certain amount of death benefit.
It goes into an account. So you pay premiums that go into an account. You can think of it as an investment account. And what the life company does is they will take their fees and the cost of insurance out of that account. So the idea is that your premiums go in, you put it into some investment mix that you get to decide. And the life companies all give you options. So there's options as to where you're going to put your funds in for an investment. So you select that your money resides there and as a life company needs to pull out things like the cost of insurance annually, that's where they go and they pull that out of that account. So there's a couple other variables that I wanted to mention for you. With Universal Life, you always get an option to either select a level cost of insurance or a yearly renewable cost of insurance. So if the level, that means that that is the premium that each year the life company will pull out. And with the renewable, that premium will vary as you get older, that premium will go up and up and up. And that's just the difference in those two structures. So be aware of that. Now, you get, like I said, you get all the options as to where you put your investment, your invested money into. And you hope that that fund performs well enough based on that premiums that you're putting in to be able to cover the cost of insurance and the fees. And so there is the fundamental difference. You have assumed some risk that you're going to select a good investment.
Where your fund is held, and hopefully it does well enough for you. So that you can cover the cost of insurance and fees as things go along. So it's a bit of a risk from an investment perspective. So if you pick good investments that do well over the life of your contract, then the life company has more than enough funds available to them to pull out those annual costs of insurance and fees. But I just wanted you to understand that is one fundamental difference. The life company has some risk, like they're on the risk for the death benefit. You pay your premiums, but you're on the risk that that investment account will perform at a high enough level to be able to cover the cost of insurance and fees. And if it didn't, well, then you might have to put more premium in just to cover that. So that is really the fundamental differences between the two products. One whole life, life company has all the risk if you pay your premiums. Universal life, you take on some of the risk because you've got this investment fund. If it does good, good. If it doesn't do as good, maybe not as good. So that's the two different fundamental differences that I wanted to cover with you today. I hope you found this useful. And again, I'm going to encourage you. If you have a need for insurance, find a licensed advisor and make sure you ask the right questions. Make sure they explain the differences and why they have selected the product they selected for you.
