Universal Life as an investment? Canada...

[stevepa]

Quick background (skip if you want): I won a bunch of money 2 years ago (2006 PCA) and at the time knew nothing about investing. So I just talked to some financial advisers and ended up picking one after very little research/thinking. Recently I've been doing a fair bit of reading and have decided I'd be much better off investing it in index funds.

Anyways, in addition to mutual funds, some of the money is invested in a Universal Life thing. Basically it's a life insurance policy but for the first few years you put in lump sum amounts, and the excess is invested. Apparently there are tax advantages, outlined here . Basically the gains are tax free until you withdraw them, and if you don't withdraw them, they're paid out tax free to policy beneficiaries.

So pretty much it doesn't sound worth it to me. However, my (soon to be ex) financial adviser (who gains nothing from me keeping this policy) strongly advised that I keep it. Hopefully BFI can be my tiebreaker...? My options, as far as I can tell, are:

1) Cancel the policy and get the cash surrender value (basically just what I put in a year ago)
2) Keep contributing as planned.
3) Do nothing...?

Any advice is much appreciated.

Thanks,

Steve

[Jimbo]

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However, my (soon to be ex) financial adviser (who gains nothing from me keeping this policy) strongly advised that I keep it.

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Dunno about in Canada but in the US he will get residuals from it as long as you keep it (although most of the comission is frontend loaded).

Jimbo

[stevepa]

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However, my (soon to be ex) financial adviser (who gains nothing from me keeping this policy) strongly advised that I keep it.

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Dunno about in Canada but in the US he will get residuals from it as long as you keep it (although most of the comission is frontend loaded).

Jimbo

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hmm, you may be right about this, not sure why I assumed it was all front end. That said, is there something similar to universal life in the US? If so, any thoughts on it?

Thanks,

Steve

[DesertCat]

usually in the U.S. Its a bad idea. The excess costs of the insurance and higher fees usually cost more than the tax savings. An index fund growing 10% per year might only have 3% in taxable gains/dividends since by their nature index funds have little turnover. At 15% tax rates that would only generate a .45% per year tax drag much less than the excess fees of you insurance policy. And even if you need the insurance policy, its much cheaper to buy it as term life. These policies are just ways to hide fees and commissions from the client.

[stevepa]

[ QUOTE ]
usually in the U.S. Its a bad idea. The excess costs of the insurance and higher fees usually cost more than the tax savings. An index fund growing 10% per year might only have 3% in taxable gains/dividends since by their nature index funds have little turnover. At 15% tax rates that would only generate a .45% per year tax drag much less than the excess fees of you insurance policy. And even if you need the insurance policy, its much cheaper to buy it as term life. These policies are just ways to hide fees and commissions from the client.

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I tried to pm you but your pm's are full. Anyways, thanks for the reply. Also, I was looking at your website and was wondering if you're going to add the TSX to Panorama?

Steve

[JROK777]

Universal life is a bad investment. If you need life insurance, buy 15-30 year level "term" insurance. Invest your money in no load mutual funds, real estate or a business. You should max out a IRA somewhere. Get your money out of UL and get it working for you. Read Charles Givens "Wealth With Out Risk."