Use the following checklist as a guide when explaining universal life insurance to clients:
Introduction to the concept
 Term life insurance is a relatively straightforward concept for most clients to
understand. It’s like their home or auto insurance — they pay a fixed premium for
a predetermined period in exchange for a set amount of coverage.
 Universal life insurance, on the other hand, is a bit more complex — it’s a
permanent insurance product that allows the client more control over how their
regular payments are used.
 Perhaps the easiest way to explain the concept of universal life is to have the
client think of it as a life insurance policy built around a tax-sheltered investment
savings account. Every month, an insurance charge will be “billed” to this savings
account. Any amount that remains in the account after this minimum charge has
been paid can be invested however the client chooses, and the earnings
accumulate tax-free for as long as they remain inside the policy.
Minimum funding to be avoided
 The more the client is able to contribute, the greater the benefits of owning a UL
policy.
 Clients who only pay enough to cover the minimum charge every month are
paying for a lot of bells and whistles they don’t use. Clients who are not able to
take advantage of the tax-sheltering feature of UL might be better off with a
“plain vanilla” insurance contract, where the same premium could result in more
coverage.
Maximize RRSPs first
 The idea that one can “hide” investment income from the government has a very
strong appeal to those who believe they are already paying too much income tax.
 While it’s true that UL can be a very attractive way to shelter investment earnings
from taxation, the product is in no position to compete with the advantages
offered by Registered Retirement Savings Plans (RRSPs). Money in an RRSP not
only grows tax-free, but the contribution can be fully deducted from income – not
so with UL policies, which shelters only investment income.
Discuss investment risk
 With more control also comes more responsibility.
 Since the savings component of a UL policy may be linked to the stock or bond
market, it’s important for the client to understand that, depending on his or her
investment choice, there is a very real possibility for loss.
 Unlike traditional whole life insurance, the cash value of a UL policy is not
guaranteed. Is the client comfortable with the short-term ups and downs of the
market, or will he or she panic and withdraw money during a downturn?
Explain penalty charges
 Universal life insurance is just that — life insurance. It’s not a short-term savings
account.
 Depending on the terms of the contract, withdrawing money during the early
years of the policy could trigger significant penalty charges.
 UL is well suited to someone who has both a clear permanent insurance need and
the ability to leave his or her money invested for at least 10 to 15 years.