Universal life (UL) insurance
A universal life (UL) insurance policy provides the policy owner with death benefits and an investment opportunity.
The policy owner can make deposits that are invested in the products offered by the insurance company, such as a mutual fund or Guaranteed Investment Certificate (GIC).
Investment growth in the UL policy is tax-deferred unless growth exceeds the limit specified by the CRA. This limit is called the maximum tax actuarial reserve (MTAR).
In Snap you can easily add a universal life insurance policy to your clients' projections.
Select Scenario Setup -> Insurance -> Insurance Policies
Select Add Universal Life.
Enter the details of the Universal Life policy.
A note about joint policies
You will notice that you can select either the client or the spouse as the person who is insured. For joint policies, choose the person who is insured based on your projections. Is one or both of the spouses projected to die within the term of this insurance policy? If this is a joint last-to-die policy, set the insured person to the longest living spouse in your projections. If both spouses live until the same year in your projections, then you can choose either spouse as the insured. If this is a joint first-to-die policy, set the insured person as the spouse whose projections end first. Note that the insurance premiums will be funded by the insured person in the projections.
If you need to update the projections to change the final year for either spouse, you can do that as shown here: How to Change the End Date of Projections
You can record additional details about the policy in the Notes section (as shown below). These notes are only displayed on this data entry screen. Notes for your clients can be added to the Comments section of the Insurance section of the report.
In Snap, the beneficiary is split into the Estate of the client, Spouse, and Other. If you have enabled Charitable Donations in your scenario, a charity may also be selected as the beneficiary. Each of these parties can be assigned a percentage of the death benefit. Please click here to review more details about assigning beneficiaries in Snap.
You have the option to enter the Coverage from Age as a date by clicking the gear icon for that field. The date you enter will be converted to age automatically.
To enter the death benefit, CSV and annual premium information select the Edit button. Click here for further details on either typing in this information or copying it from an Excel spreadsheet. Select Save.
NOTE: You have the option to include the Cash Value in the Death Benefit for this type of policy. To enable this option, click the Edit button and check the box to Include cash surrender value in death benefit. If this checkbox is checked, the cash value (CSV) is paid out together with the death benefit on a tax-free basis.
The policy is listed under the Insurance Policies table. Click the pencil icon to edit the details, or the trash can to delete the policy. Select Planning Page to return to the projections.
The new Universal Life policy will be displayed on the main Planning page. Note that the Death Benefit value will show $0 if the beneficiary of the policy has been set to "Other".
In the Report, select Insurance Policies to view the details and add comments.
Impact on cash flow and estate
The annual universal life insurance premium is subtracted from the insured person's cash flow to cover the cost of insurance.
The death benefit is included in Estate before Tax on the main Planning page unless the beneficiary has been set to "Other". If the life insured dies, the death benefit is paid to the beneficiary as specified in the Beneficiary section. The cash reserve or CSV is only paid out upon death if the appropriate checkbox is checked on the policy details page. In the example above, you can see that the Estate Before Tax in the first year of projections is $1,891,025. This includes the Non-Registered account balance plus the UL policy Death Benefit and CSV, and the Real Assets. ($1,891,025 = $293,860 + $1,000,000 + $36,165 + $561,000)
The insurance proceeds are shown in a separate line in each year's Estate Summary.