Ben Nguyen 
Universal life insurance (UL) has become a significant product in the Canadian permanent life insurance marketplace. The flexibility of adjustable premiums and death benefits makes universal life insurance policies appealing to many consumers. Additionally, Secondary Guarantees Universal Life Insurance that protect against lapse have further enhanced the popularity of universal life insurance.
This comprehensive guide for insurance advisors will examine the history, product designs, pricing considerations, risks, and outlook of secondary guarantees universal life insurance in Canada.
What Are Universal Life Insurance with Secondary Guarantees?
Secondary guarantees universal life insurance in Canada are provisions in universal life policies that guarantee the policy will remain in force for a certain period of time, given certain conditions are met. This prevents the policy from terminating due to low cash value.
Main types of secondary guarantees universal life insurance in Canada
Secondary guarantees on universal life insurance in Canada guarantee that the policy will remain in force for a certain period provided certain conditions are met. This protects against the policy’s lapse or end, even if the cash value that usually keeps a universal life policy going becomes depleted.
There are two main types of secondary guarantees UL in Canada:
- No-lapse guarantees: Guarantee a policy won’t lapse for a set term like 5-10 years.
- Lifetime secondary guarantees: Guarantee lifelong coverage if premium requirements are met.
No-Lapse Guarantees
No-lapse guarantees ensure the policy will stay in effect for a set term, usually between 5 and 10 years. They prevent the policy from terminating during the guaranteed period due to insufficient cash value as long as the scheduled premiums are paid.
Lifetime Secondary Guarantees
Lifetime secondary guarantees guarantee that the policy will remain in force for the insured’s entire lifetime as long as defined premium requirements are satisfied. This assures lifelong coverage.
The guaranteed premium payments are typically lower than permanent life insurance policies like whole life insurance. However, they must be made according to the contract’s specifications.
For example, the table below shows sample annual premiums for a $1 million lifetime secondary guarantee universal life policy for a healthy 35-year-old male, non-smoker across various Canadian insurers:
| Insurer | Annual Premium |
|---|---|
| Sun Life | $4,450 |
| RBC Insurance | $4,983 |
| Canada Life | $5,003 |
| Equitable Life | $5,168 |
| BMO Insurance | $5,220 |
| Manulife | $5,280 |
| Desjardins | $5,395 |
As the table shows, lifetime secondary guarantee universal life premiums can range between $4,000 – $5,500 annually for a 35-year old male. This compares very favorably to whole life insurance which would be 2-3 times higher for a similar lifelong coverage guarantee.
What Are The Benefits of Universal Life Insurance With Secondary Guarantees?
There are several advantages universal life insurance with secondary guarantees can provide:
- Lapse Protection – The guarantees prevent policies from terminating unexpectedly if cash values become inadequate to cover costs. This gives policyholders assurance their coverage will continue.
- Flexible Premiums – Secondary guarantees allow flexibility to adjust premium payments, within parameters, to align with changing financial needs. Minimum required payments must still be made.
- Potential Cash Value – Many universal life policies with secondary guarantees offer the ability to accumulate cash value that can be accessed via withdrawals or policy loans. However, guarantees take priority over cash value accumulation.
For example, the table below shows projected cash values at age 65 for a $1 million policy taken out at age 35 making minimum secondary guarantee payments:
| Insurer | Projected Cash Value at 65 |
|---|---|
| Sun Life | $8,220 |
| RBC Insurance | $12,500 |
| Canada Life | $7,100 |
| Equitable Life | $9,860 |
| BMO Insurance | $8,900 |
| Manulife | $7,500 |
| Desjardins | $9,100 |
As shown, cash values can accumulate on universal life insurance with secondary guarantees, however, they are generally more modest compared to other permanent life insurance products. The priority is on providing the lifetime guarantees.
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How Does Secondary Guarantees Universal Life Work in Canada ?
Secondary guarantees universal life in Canada are contractual provisions that must be adhered to keep the guarantee intact. Here is how they work:
- A cumulative premium target is defined to maintain the Universal Life insurance with secondary guarantee.
- As long as actual cumulative premiums paid exceed the target, the guarantee remains in effect.
- If cumulative premiums lapse below the target, the guarantee can lapse, and the policy may terminate.
- Minimum periodic premium amounts are set to make sure the cumulative target is achieved.
- Conditions like policy loans and withdrawals can impact the cumulative premium target.
Essentially, sticking to the prescribed premium schedule keeps the secondary guarantee valid. Falling behind can put the guarantee at risk.
What Happens If You Stop Paying Premiums on Universal Life Insurance With Secondary Guarantees?
If you cease paying premiums on universal life insurance with secondary guarantees, here’s what can happen:
- During a no-lapse guarantee period, the policy will remain in force for the guaranteed term.
- For a lifetime secondary guarantee, the policy can lapse if cumulative premiums fall below the target amounts needed to maintain the guarantee.
- The policy may be able to stay in force temporarily by continuing to deduct costs from any existing cash value. But costs can quickly deplete the cash value.
- Once the cash value hits zero, if cumulative premiums are still below guarantee targets, the policy will terminate without value.
- Policy termination triggers when the “shadow” account tracking cumulative premiums goes negative.
Clearly, keeping up with prescribed secondary guarantee premium requirements is essential to prevent unwanted policy lapses.
What Factors Determine the Cost of Secondary Guarantees Universal Life Insurance in Canada ?
Insurers price universal life insurance with secondary guarantees very carefully based on multiple risk factors:
- Mortality Risk – Secondary guarantees are popular for older insureds, so pricing must reflect mortality trends at advanced ages. Reinsurance can help mitigate some mortality risks.
- Lapse Risk – competitively priced secondary guarantees depend on lapse assumptions to achieve profitability. Pricing must reflect lapse experience by duration, cash value, age, and other factors. Lower lapses than expected can hurt profits.
- Interest Rate Risk – Secondary guarantees universal life insurance, which limits interest spread profits from fixed UL products. IUL and VUL products also carry risks tied to index and subaccount volatility. Scenario testing helps assess interest rate sensitivities.
- Expense Risk – With modest account values on many secondary guarantee products, expenses may not be fully covered as pricing assumes. Expense overruns directly impact profit margins. Evaluating all these risk factors is crucial when pricing secondary guarantee products to ensure adequate profitability across potential scenarios.
- Policyholder behaviour – A key pricing risk is whether policyholders will only pay the minimum secondary guarantee premiums or pay higher premiums for added cash value potential. Product testing must determine realistic premium patterns.
Insurers must project risks like mortality, lapses, interest rates, expenses and policyholder behaviour as accurately as possible when pricing secondary guarantees universal life to maintain profitability.
What Are Some Alternatives to Universal Life Insurance With Secondary Guarantees?
Universal life insurance with secondary guarantees isn’t the only option for permanent protection. Some alternatives to consider include:
- Whole life insurance – provides lifelong coverage, but premiums are 2-3X higher than secondary guarantee UL.
- Term life insurance – Lower-cost term policies (10, 15, 20 or 30 years) may suit short or medium term insurance needs.
- Guaranteed universal life – A simpler product with lifetime coverage, fixed premiums, and limited cash value.
- Annuities – Income annuities can provide protected lifetime income but don’t offer a death benefit.
- Self-insuring – Relying on personal savings and investments to self-insure risks rather than buying life insurance.
Ultimately, determining the right solution depends on your specific insurance needs, budget, and financial objectives.
How Much Are Premium Payments on Secondary Guarantee Universal Life Insurance in Canada?
Premiums for secondary guarantee universal life insurance can vary greatly depending on:
- Age when the policy is purchased
- Gender
- Health profile
- Amount of Coverage
- Type of secondary guarantee
- Length of the guarantee period
- Product features and options
To put the range in perspective, here are some sample annual premiums for a healthy 35-year-old male seeking $1 million in coverage:
10 Year No Lapse Guarantee
$400 – $550 per year
Lifetime Secondary Guarantee
$4,000 – $5,500 per year
Lifetime secondary guarantee premiums are pretty affordable compared to other permanent protection options. A whole life policy would cost 2-3X as much for ongoing lifelong premiums.
Canadians should compare quotes from multiple top insurers to find the best secondary guarantee universal life insurance rate for their situation. They should also rely on an advisor’s expertise to secure the right policy at the optimal price.
Should Canadians Buy Secondary Guarantees Universal Life ?
Secondary Guarantees Universal Life Insurance can benefit Canadians seeking permanent life insurance in certain situations:
- You desire lifetime protection but find whole life insurance cost-prohibitive.
- You prefer to pay lower premiums even if it means less cash value accumulation.
- You want to maintain flexibility to adjust death benefit amounts or premium payments.
- You have assets to leave behind and want to leverage life insurance in your estate plan.
However, universal life insurance with secondary guarantees isn’t ideal for everyone. Shop carefully and understand the conditions before moving forward.
Where to Buy Universal Life Insurance With Secondary Guarantees in Canada ?
There are a few options to explore when buying universal life insurance with secondary guarantees policy in Canada:
Insurance Agents
Connecting with a licensed life insurance agent is a common starting point. Agents have access to products from numerous providers and can help you compare options. Independent agents offer policies from many insurers, while captive agents represent just one company.
Insurance Advisors
For more comprehensive planning advice, registered insurance advisors go deeper into analyzing needs and designing strategies. Advisors often work with high net worth individuals and business clients requiring specialized expertise.
Banks
Most major Canadian banks like RBC, TD, BMO, CIBC, and Scotiabank offer universal life insurance both online and through branches. Banks predominantly carry policies underwritten by their own insurance affiliates.
Online Insurers
Many insurers offer online quotes and applications for secondary guarantee life insurance via their websites. Lower overhead means potential cost savings but limited face-to-face service.
Financial Planners
A financial planner or wealth manager may include insurance as part of financial plans for certain clients. They can coordinate advice on life insurance along with investments, tax planning, and estate strategies.
Canadians have plenty of avenues to explore when shopping for competitive secondary guarantee universal life insurance policies from reputable providers.
How to Buy Universal Life Insurance With Secondary Guarantees in Canada ?
Here is a step-by-step guide on how to purchase universal life insurance with secondary guarantees universal life in Canada:
Determine Needs
Figure out motivations, time horizons, budget considerations, and the amount of coverage required. This shapes options.
Research Options
Learn about different types of life insurance in Canada and secondary guarantee features. Understand pros/cons to make decisions.
Shop Multiple Quotes
Engage several reputable life insurers, brokers, agents, or online providers to get premium estimates.
Compare Solutions
With rate quotes in hand, do a thorough comparison of policy features, costs, ratings, and insurer financial strength.
Apply & Underwrite
Submit formal applications with preferred insurers to begin the underwriting process. This will require providing medical and financial information.
Review Policy Issues
Carefully review the policies after underwriting is complete. Ask questions and understand details before accepting.
Fund & Activate Coverage
Once satisfied, pay the first premium to put coverage into effect. Confirm accuracy of policies.
With prudent research, smart shopping, and expert guidance, Canadians can secure competitive universal life insurance with helpful secondary guarantees.
Key Takeaways on Universal Life Policies With Secondary Guarantees for Canadian Life Insurance Shoppers
- Universal life insurance with secondary guarantees prevents policies from terminating unexpectedly.
- Lifetime guarantees require paying scheduled premium amounts to keep coverage in force.
- Potential for cash value accumulation exists but isn’t the main focus.
- Shop carefully and compare alternatives like whole life insurance and term life insurance.
- Get advice from an expert insurance advisor before making decisions.
Frequently Asked Questions
Do universal life policies with secondary guarantees build up any cash value in Canada?
Yes, most allow for some tax-deferred cash value accumulation, although less than a standard universal life policy. Cash values grow on a tax-deferred basis but aren’t guaranteed.
Can the premiums required for secondary guarantees on Canadian universal life insurance be increased?
No, the premium schedule for secondary guarantees is contractually set at issue and cannot be increased. Insurers cannot arbitrarily raise required premiums after issue.
What happens to the death benefit when secondary guarantees keep a Canadian universal life policy in force?
The death benefit continues unchanged when secondary guarantees prevent policy lapse. Beneficiaries still receive the full death benefit payout despite low cash value when the insured passes away.
Do Canadian universal life insurance policyholders ever lose secondary guarantee protections?
Yes, if cumulative premium payments fall sufficiently below the scheduled premium requirements in the contract, the secondary guarantee can be void and no longer prevent unintended policy lapse.
What features of universal life insurance attract Canadians to buy policies with secondary guarantees?
The dual advantages of flexible premium payments, adjustable death benefits, and tax-advantaged cash value accumulation coupled with absolute guarantees against lapse make secondary guarantees appealing.
Should older Canadians get term or universal life with secondary guarantees?
Older consumers often prefer universal life with secondary guarantees due to lower premiums for lifetime protection compared to renewable term life insurance. Secondary guarantees provide permanent coverage with more affordable premiums.
How do insurance advisors assist Canadians in determining if secondary guarantee universal life makes sense?
Advisors help clients evaluate needs, time horizon, budget, cash flow, and financial objectives. This analysis helps determine whether secondary guarantee universal life aligns well compared to other insurance options.
Can universal life insurance policyholders remove secondary guarantees from Canadian policies?
No, secondary guarantees cannot be removed or rescinded from an inforce life insurance policy. They are contractual provisions that remain for the duration of the policy.
Do Canadian universal life insurance policyholders ever lose secondary guarantee protections?
Yes, if cumulative premium payments fall sufficiently below the scheduled premium requirements in the contract, the secondary guarantee can be void and no longer prevent unintended policy lapse.
Are premium payments for secondary guarantee life insurance guaranteed to never increase?
Yes, the premium schedule for secondary guarantees is contractually guaranteed at issue and cannot be increased at the insurer’s discretion. Policyholders can pay more but aren’t required to.
What are the tax implications of secondary guarantee universal life insurance in Canada?
The tax treatment of secondary guarantee universal life policies in Canada is similar to other permanent cash-value life insurance. The death benefit is paid tax-free to beneficiaries. Cash value growth is tax-deferred. Withdrawals and policy loans may be taxable under certain conditions.
Do policy loans impact secondary guarantees universal life on Canadian UL policies?
Yes, taking excessive policy loans can potentially jeopardize secondary guarantees if cumulative premium targets are disrupted. Loans must be managed carefully to avoid guarantee lapse.
Can Canadians lose their secondary guarantee protections on universal life insurance policies?
If the prescribed minimum premium schedule is not maintained, the secondary guarantee can cease, and the policy may lapse if action is not taken.
How do secondary guarantees universal life policies affect government benefits in Canada ?
Secondary guarantees work the same way as standard universal life insurance. Cash values can impact government income-tested benefits, but death benefits pass tax-free outside one’s estate.
What are the charges typically involved with secondary guarantee universal life policies in Canada?
The charges resemble those of other UL policies and include:
- Expense charges.
- The cost of insurance.
- Surrender charges.
- Perhaps an explicit fee for the secondary guarantee rider.
Do Canadian secondary guarantees universal life have exclusions that void the coverage?
Standard policy exclusions apply, such as due to suicide within two years of issue or non-disclosure. Otherwise, guarantees are contractually guaranteed if premium terms are met.
What happens to secondary guarantee universal life policies after age 100 in Canada?
Most lifetime guarantees go to age 100. After that, coverage continues on a non-guaranteed basis contingent on cash value continuing to fund the policy.
How do Canadians know how much secondary guarantee UL insurance to buy?
Insurance advisors help determine appropriate amounts based on goals, income needs, debts, survivor expenses, estate plans, and other obligations.
Can the premium payment schedule change on inforce secondary guarantee universal life policies?
No, the guaranteed premium schedule cannot be altered after the issue. However, policyholders can voluntarily elect to pay higher premiums.
How do Canadians ensure secondary guarantee universal life insurance policies align with financial plans?
Reviewing overall financial situations with advisors, accounting for other assets/liabilities, evaluating cash flows, and periodically updating plans help optimize the utilization of secondary guarantee policies.
What happens to secondary guarantees on Canadian universal life policies after a missed premium payment?
The policy will remain in force briefly by deducting costs from cash value. But if cumulative premiums fall below secondary guarantee universal life targets, the policy risks terminating soon after a missed payment.
Can Canadians reduce their secondary guarantee universal life insurance coverage later on?
The adjustable nature of universal life allows Canadians to potentially lower their death benefit and corresponding premium payments within contractual limits.
Do secondary universal life insurance guarantees in Canada ever expire?
No-lapse guarantees expire after the defined term length chosen (ex., ten years). Lifetime secondary guarantees remain perpetually as long as premium terms are satisfied.
How do Canadians know how much to budget annually for secondary guarantee universal life insurance premiums?
Insurers provide guaranteed annual premium schedules. Budgeting the defined payments ensures secondary guarantees stay effective, preventing unintended policy lapse.
What happens if a Canadian stops paying into a secondary guarantee universal life insurance policy with cash value?
The policy can remain in force by deducting monthly costs from the existing cash value. This continues until the cash value hits zero; at this point, the policy terminates if premiums are insufficient.
Do Canadian insurers ever cancel secondary guarantee provisions on universal life policies?
No, secondary guarantee provisions on Canadian universal life insurance policies are contractual benefits that the insurer cannot cancel or take away as long as the policyholder upholds the terms.
How do Canadians manage policy loans on secondary guarantee universal life insurance?
Policyholders must be careful not to withdraw or borrow excessive amounts that could disrupt cumulative premium targets and put guarantees at risk. It’s optimal to consult the insurer for guidance on loan limits.
What happens if a Canadian lets their secondary guarantee universal life insurance policy lapse?
If the policy terminates, coverage ends. However, if back premiums are paid with interest to restore cumulative premium levels, the policy could be reinstated within a certain period.
Can Canadians adjust their secondary guarantee universal life insurance death benefit after issue?
The adjustable nature of UL allows increasing or decreasing coverage amounts within contractual limits defined by each insurer. An advisor can explain options.
How do demutualized policy dividends affect secondary guarantee universal life provisions in Canada?
Mutual insurers that demutualize sometimes issue policy dividends. But these don’t alter the required scheduled premiums for secondary guarantee provisions.
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