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Universal Life Insurance – Part 1

Ed Rempel, a CFP and CMA, is a regular guest writer here on Million Dollar Journey. Today, he has written an informative and opinionated article regarding Universal Life Insurance. A must read for those contemplating different types of insurance.  This is Part 1 of 2.

There is a saying in the insurance industry – “If the only tool you have is a hammer, then every problem looks like a nail.”

There should be a comedy show about many insurance seminars. Insurance advisors are trained to:

  • "Create a need (for insurance) and then fill it.”
  • “What we do is find a scab and then pick it.”

Universal life (UL) is one of those products that I believe is vastly overused. It takes a bit of work to invent a need for it, but with some practice, it is often sold anyway.

My opinion is that universal life, for most people, amounts to paying for insurance you don’t need so that you have the option to limit your investment choices.

First of all, what is universal life insurance? Essentially it is term for life plus the option of buying investments in your policy.

We can all understand term insurance. We buy a 20-year term. If we are still alive after 20 years, then it was a complete waste of money. But that is what we normally want – for insurance to be a complete waste of money. It is the cheapest insurance and while we are alive, we know our loved ones will be looked after financially if something happens to us.

Term for life, usually called “term 100” means you pay a flat premium for life. It is more expensive because it will pay out some day, as opposed to term for 10 or 20 years which most likely will not pay out. In fact, term 100 usually pays out if you reach age 100 even if you are still alive. Then you can have a great party!

Universal life with a minimum premium payment is term 100. You can choose a higher premium and the extra amount is used to buy investments in the policy.

Stay tuned for Part 2 tomorrow

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About the author: Ed Rempel is a Certified Financial Planner (CFP) and Certified Management Accountant (CMA) who built his practice by providing his clients solid, comprehensive financial plans and personal coaching.

Ed has written numerous articles to educate the public and his clients on his unique insights into strategies that actually work, instead of the “conventional wisdom” common in the financial industry.

Ed has trained more than 200 financial advisors and is considered the Smith Manoeuvre expert in the Toronto area. He has received accolades from Frasier Smith in his book “The Smith Manoeuvre” for customizing this strategy for hundreds of clients. His extensive experience in tax and finance has placed him in high demand. Ed’s team collaborates on each of their clients to help them create financial security and freedom.

{ 23 comments… add one }
  • The Financial Blogger July 16, 2007, 8:00 am

    Couple of years ago, Me and my wife first subscribe to a 100K UL for each of us. Since then, we bought a house, than a bigger and he had a son. When my wife got pregnant for the second time, we clearly established that 100K each was not enough. I decided to check what a 500K first to die term insurance (20 years) would cost… The same thing as our 100K each!

    So then, we cancel our first policy and went with the 500K option. We figured that if we live for another 20 years, our children will be able to take care of themselves and that we should have enough money put aside to let the other people in a good financial position.

    I must admit that knowing that my wife and kids would get 500K if I ever die tomorrow makes me feel good at night. I was also very surprised to find out it would not cost more than our previous UL!

  • FrugalTrader July 16, 2007, 10:00 am

    FB, if you don’t mind me asking, how much was your $500k term insurance? And what made you decide on the $500k amount?

  • The Financial Blogger July 16, 2007, 10:52 am

    Hi FT,
    it’s $125 a monht for a 500K jointe-first-to-die policy. If both my wife and I pass away in a span of 45 days, the policy doubles up to 1M$.

    Actually, this post creates two ideas of article for my blog regarding my choice. It will be on this week.

    Let just say that it seemed enough for now to cover the mortgage, loans and our kids’ education.

  • sam July 16, 2007, 12:32 pm

    hi ed,
    many thanks for your inputs….
    this article might help few of you..it’s about excess
    MER in universal life..



  • Life Insurance Toronto July 19, 2007, 5:31 am

    I’m quite shocked that you’re trying to portray universal life insurance as if it was this simple – check out our articles and you may learn something new! Cheers!

  • Mike July 9, 2008, 12:28 am

    Interesting article.

    I started my career as an advisor creating the ‘need’ you describe. Often I would be taught the selling point of UL was the concept of the collateral loan as a supplement to retirement income. For the beginning of my career I totally believed in UL and it’s virtues.

    The process of using UL for this method is a very complicated one and sold as the opposite. Having tried to go through the process with a client who had overfunded a UL for years I quickly found out how little the companies actually know about implementing this strategy.

    I would be interested to see if anyone can comment on this strategy and their experiences with either putting it in practice or just simply their thoughts.

    Regarding investments in UL: While certain companies have access to quality investments, the argument that you put forth regarding MERs is another downside to UL. Investment accounts work well when used as a method to transfer assets from generation to generation. I still use UL for this method only if the insurance need exists.

    I developed my site http://www.termchoice.ca to promote term insurance for the exact reasons you speak of. I agree that term is the tool that most families need for the bulk of their lives and applaud you for being completely transparent.

    Mike McKay

  • Brian Poncelet,CFP March 20, 2010, 11:01 pm


    Go to https://www.milliondollarjourney.com/how-annuities-work.htm

    There is an old concept which is called an insured annuity. The idea is the insurance pays an income for life, if you die early the insurance company keeps your money. If you live for a long time, the insurance company has to pay for life even if you are 105. You can not run out of money! To protect the estate, permanent life insurance is bought. Yes you can buy term but if you live longer than say 70, you have wasted your money and the insurance company is off the hook.

    After taxes are considered, a GIC of over 6% is needed, at higher tax brackets this number goes over 8% even at current low interest rates! Other benefits may be avoiding OAS claw backs and age amount (age 65) claw back. This could mean many hundreds or thousands of dollars saved every year.

    My thinking is for conservative investors wanting a guaranteed return of 6% or better need to consider permanent life insurance for long term planning.

    Term insurance is short term coverage (like renting) is good to start with, but over time you have no coverage and limits things like an insured annuity.

  • Glenn Cooke July 26, 2010, 12:33 pm

    You said:
    . In fact, term 100 usually pays out if you reach age 100 even if you are still alive. Then you can have a great party!

    I believe this is factually incorrect. I think most Term to 100 policies become paid up at 100, not pay out.

    If they pay out, there’s tax implications. I remember this being discussed back in the early 90’s or so, whenever Term to 100 first came on the scene and the initial policies were silent on this. When people started to question it, my recollection was that the companies moved to a paid up but not pay out model.

  • Brian Poncelet,CFP August 30, 2010, 11:46 pm

    Hi Glenn,

    You may want to review


    If you help people with corporations… taxes is a major reason why you’d look at a UL plan. Since most people don’t understand taxes, term insurance (renting) makes sense and invest the difference and try to make money after you pay taxes.

    Since the TSX over the last 10 years( no fees) has averaged only 1.19% (up to July 2010) this does not seem so hot.

  • Ed Rempel September 2, 2010, 2:00 am

    Hi Brian,

    It’s too bad you seem to have lost faith in the stock market. It is the asset class with by far the highest long tern returns.. The last 10 years started at the top of the tech bubble and ended not long after the 2008 crash, so it looks a bit bleak.

    However, that does not change the fact that the stock market is the best place to invest for the long term.

    The tax advantages of UL are exaggerated for several reasons:

    1. It is only tax free if you are saving for the next generation – not if you ever want to use the money.
    2. It provides a tax deferral, but you have to pay the premium tax, as well as the cost of the life insurance and usually a higher MER as well. Meanwhile, you can get the tax deferral without all the extra costs with a corporate class mutual fund or a buy-and-hold investment philosophy.
    3. Receiving investment income in a corporation can be an advantage, not a disadvantage, if you handle it correctly. Investment income is taxed at the highest rate in a corporation, but there are actually tax advantages if you invest in the corporation and then pay the income out to yourself personally. You would pay the same tax on a dividend or capital gain in a corporation than you would personally (once you consider total tax), but if you invest in the corporation, you have a higher amount invested.

    In short, the tax benefits of UL are exaggerated, very expensive and easy to create in other ways.


  • Brian Poncelet, CFP September 4, 2010, 8:51 am

    Hi Ed,

    You need to read https://www.milliondollarjourney.com/how-annuities-work.htm

    as one example why UL is wise to consider for someone who has non-registered money and would like a guaranteed 6% or better return at age 65. Currently I don’t know any mutual fund doing that. Most Seniors want steady income that is guaranteed and will last a lifetime.

    What the market shows us is returns come a go. If you want to take a long term point of view looking at UL gives you options that mutual funds and stocks etc can’t give that is options.

    One does not have to put all their money in UL like one should put all their money into real estate or stocks.

    Once you read the annuity link we can chat some more.

  • Jayboard September 7, 2011, 9:26 am

    My wife and I pay heavy into “whole life insurance” as an investment, also we have critical care insureance as well. What are your opinions regarding these types of insurance?

  • Brian Poncelet,CFP September 7, 2011, 10:48 am


    I don’t see any insurance as an investment only as part of risk management,
    Having said that re-read


    Having insurance in place when you are older gives you options you don’t have with investments like stocks or mutual funds which can go up or down.

    Lets say you are 65 years or older would like a 6-8% rate of return guaranteed for some of your income…can’t get that with stocks or mutual funds.

    If you have a pension, you can elect to have a higher payout at retirement and a lower or zero payout if you die too soon. Can’t or should not do that if you don’t have insurance as a back-up.

    In short, since I don’t know your situation (cash flow, age etc.) It is hard to say if what you have is good. For example if you have kids then having more coverage may be needed (usually term fills this gap) but having some permanent insurance is good assuming you plan on living for along time.

    Hope this helps.

  • Brian Poncelet,CFP December 25, 2011, 9:22 pm


    Since you wrote this story on life insurance. Yes UL is not a good investment but I don’t know if you have any retired clients getting 6-8% guaranteed using annuities (which is insurance) and backing it up with permanent life insurance.

    This of course needs planning (the earlier the better). Since rates have gone down the cost of permanent insurance has gone up. The TSX is down about 10% and the ten rate of return is poor, if you are retired you can’t make this up.

  • Brian Poncelet,CFP November 11, 2015, 11:39 pm

    I wanted to revisit this blog and break down some common misunderstanding comments.

    One is though not talked about is buy term and invest the difference.
    Ed talks about permanent insurance like it’s a bad thing. Like renting is good and owning is bad. Ask any home owner if this seems right.
    “We buy a 20-year term. If we are still alive after 20 years, then it was a complete waste of money”.

    One of my clients works for a large company which has a generous pension which we estimated worth over 2 million dollars if we had to generate a income which grows every year for life.

    Question how much would you insure the pension for? Assuming he has a family ?
    2 million? Would you want all the premiums back after 20 years plus interest if you wanted? How about having the money grow tax free like a TFSA?

    You can’t do that with term insurance. So he bought permanent insurance (the good stuff).

    Once you factor taxes, lost opportunity cost, protecting pension money that one has worked for over 25 years. Term insurance does not cut it.


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