Universal Life is a flexible type of permanent insurance product divided into an investment account that you choose which is similar to a mutual fund and an insurance portion.
These policies have a great deal of flexibility; payments can be reduced, usually right down to the cost of insurance alone.
Universal Life policies have a great potential for gain from the investment portion. They serve as a vehicle for tax-deferred growth and tax-free payout to heirs.
John is a Doctor who manages to maximize his RRSP room each year. John is looking for additional Life Insurance so he contacts his Insurance/ Investment Broker. His broker suggests that he purchase a Universal Life Insurance policy and over fund or put more money into his policy each month than just the premium. This extra money will go into a tax-deferred growth investment. Many years down the road John passes away and his policy of $1,000,000 gets paid to his beneficiaries tax-free. His beneficiaries also receive an additional $942,000 tax-free payment from the investment portion of the Universal Life policy that has grown all of these years without being subject to income tax.