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Financial Literacy Seminar – Investing 101

Money gif

A huge part of why I write so many blogs and magazine articles is to help people take better control over their own financial affairs by arming them with the information they need to make this happen. As part of this commitment, I am in the process of setting up a 2 hour intro to investing seminar with a bunch of investment advisor colleagues of mine tentatively set for February 8 or 15th in Vancouver. My goal is provide anyone who wants to come out with an overview of basic investment topics so they can get better understand their investments, have a better idea of their choices, ask better questions of their advisors and, ultimately, better protect their financial futures. Here are some of the potential topics:

  • Taxation of Investments and what is a dividend, ROC, interest and capital gains, benefits of compounding.
  • Understanding an investment statement, including book and market values, rates of return, benchmarks.
  • What are ETFs, Mutual Funds, Pooled Funds, Wrap Accounts – pros and cons.
  • Diversification and how to get it.
  • Time horizons, and rebalancing.
  • How RRSPs, RESPs and TFSAs work.
  • Covered calls, REITs and MICs and other types of high income investments.

I am really excited about the quality of the people who have indicated they are interested in presenting and have tried to pick people who are both really good at what they do who offer different perspectives. I am writing this message at this time to get an idea about how many people would be interested in attending, as well as any feedback anyone might have in terms of topics, so please let me know if you have any interest in attending.

Thanks and Happy New Year,


Investing Inside an Insurance Policy –Part 3 Universal Life Insurance as an Investment



Think that life insurance is just a tool to make sure that junior gets the university vacation if you die in your 40s, your spouse doesn’t have to worry about mortgage payments if you die in your 60’s or your kids have enough money to pay the final tax bill on the family cottage if you die in your 80’s? Not so fast, says the insurance industry. They are now seeking a place at the table when clients discuss ways of funding their own retirement, particularly for those clients in higher tax brackets and those that have their own corporations.

The first two parts of this series have detailed some of the significant tax advantages enjoyed by life insurance and steps you can take to mitigate risk when looking to invest through life insurance or if you’re already the proud owner of a policy to call your own. To date, I’ve said little about your actual investment options inside an insurance policy, although I’ll focus solely on “Universal Life” or UL Policies, the insurance that most closely resemble traditional investments. For those of who are fans of Participating Whole Life (“Par”) Policies, you’ll unfortunately have to wait until next time. Finally, regardless of whether you’re looking at either of these types of policies or even more basic permanent policies, my (hopefully) final article in this series will hopefully provide you with guidelines to use when measuring life insurance against traditional investments, as any comparison between options is only as accurate as the underlying assumptions.

But, before I go any further, I wish to thank the insurance advisors I’ve canvassed for their insurance investment recommendations: Lee Brooks of View 360 Insurance Advisory (New Westminster, British Columbia), Tyler Eastman, Sun Life Advisor (Terrace, British Columbia), John Ong, Certified Financial Planner (Vancouver, British Columbia) and fellow Money Saver Contributing Editor, Rino Rancanelli, owner of (Oakville, Ontario).

Setting the Stage

While Par Policies are something of a mysterious black box that spits out policy dividends each year and often offer guaranteed increases in cash value, UL policies are generally more transparent, flexible and multi-purpose creatures. There is a set minimum premium payable monthly or yearly for guaranteed death benefit or “face value” of the policy but extra contributions are allowed into what is called an “accumulating fund” that is essentially a tax-free investment account whose balance at death is paid out tax-free on top of the face value. Each insurer offers its own set of different investment options. Traditionally, this meant predominantly mutual funds, which has often meant more uncertain and volatile returns than Par Policies and some rather steep investment management fees.

Like Par Policies, the greatest risk to owning a UL is having the policy run out of money when the owner doesn’t have extra funds to contribute to the cause. Traditionally, there has been a far greater chance of this happening for UL policies than their Par compatriots for a few reasons:

  • Although a UL policy will offer you far more upside than a Par Policy, it also exposes you to double digit losses in a year if you pick riskier investment options and all does not go well.


  • Inability to lock in gains. If you get paid a policy dividend in your Par policy, it gets added to the cash value and the insurance company can’t take it away from you the next year if their investments don’t perform as expected. Accordingly, they invest more conservatively and factor lots of margin for safety when setting premium rates. UL policies give clients the chance for making a lot more profit but don’t generally provide them with this safety net, except for “limited pay” policies that at least ensure that you are no longer responsible for ongoing premium payments after a set period of time even though any additional contributions you’ve invested are still fully at risk. I have listed a few exceptions to the rule later in this article.


  • Overly optimistic investment return assumptions. In the 80’s and 90’s, when markets soaring and interest rates were high, UL policies were the policies of choice, while Par Policies were considered yesterday’s news. Although illustrations for both types of policies purchased during this period have not lived up to expectations, UL policies (particularly if invested in mostly equities) took far more of the pain. While Par policies ended up paying less than everyone hoped, at least they continued to pay out policy dividends year over year. In contrast, negative portfolio returns in UL policies meant that the anticipated growth that was supposed to pay future policy premiums was not merely growing slower than expected but was actually shrinking. That meant policies running out of money far sooner.


  • Yearly Increases in Premiums. It was common for clients to purchase UL policies that had yearly increases in their insurance costs (sometimes to set ages and sometimes indefinitely) to keep costs low in the early years so they could have more money working for them in their investment fund. The theory was that the opportunity to have more money in the market longer helped clients since the extra profits they would earn on their investments in the early years would pay for the increased insurance costs on the back end. When performance lagged and the clients didn’t continue to contribute fresh funds to keep their UL policies on course, the increases in fees, modest for younger clients but growing significantly for older clients, ultimately made many policies unsustainable. By contrast, Par Policies generally offer a level premium for life so that, even if they weren’t able to be self-funding as early as originally illustrated, the cost of keeping the policy going was not nearly as significant.

On the other hand, life is about learning from one’s mistakes. Just because UL policies have performed badly in the past, doesn’t mean that there is no place for them in your future. The potential tax savings and advantages offered by these policies are real and can still offer significant benefits to the right clients. For the same reason that it can be a mistake for investors to completely shun investing in the stock market just because they’ve been bitten in the past, it may also be a missed opportunity for investors to not investigate using ULs now merely because of past problems. The secret is often to learn from and fix the mistakes of the past rather than abandoning a strategy without a backward glance.

Along those lines, the insurance industry has made some significant changes to their investment offerings and the investment fees charged on these offerings that do a lot to mitigate risk and enhance performance. Moreover, no one is purchasing these policies on the expectation of continuous double-digit returns, which means that it is now a lot easier for ULs to live up to their promises. In defence of insurance advisors past, however, it wasn’t merely the insurance industry that was assuming that investors in that period would continue to enjoy double-digit returns in perpetuity; many investment portfolios burdened by similar unrealistic expectations also floundered and flopped.

Finally, more clients select policies with level premiums, specially designed policies that allow tax sheltering but reduce or even almost eliminate the insurance costs over time, or, if they do choose yearly increases in costs, doing so with a contractual right to switch over to a fixed yearly charge at a later date of their choosing at a predetermined rate. In other words, they can take advantage of the rather significant savings and potentially improved overall results by paying yearly increasing rates for a number of years but preselecting a time to bite the bullet and switch over to level rates based on their age at that time in order to control future costs. In the end, UL policies are a lot like an electric drill– if used in the right situation, in a careful, safe manner and regularly maintained, it just might be the best tool for the right job, although if used inappropriate, there is the chance of pain and shocks.

Changes in UL Investment Options

 In my previous article in these series, I argued that it’s important to manage your UL policy in the same way as the rest of your investments. This means reviewing and potentially rebalancing the investments inside your portfolio at least once a year, changing your holdings if your time horizon and risk tolerance change and getting your insurance advisor to update your policy illustrations every few years so you can make small changes immediately rather than facing large changes later.

Noting all of this, in the end, it still often comes down to investments inside the policy. My personal bias is to use UL policies for the slow and steady portion of your portfolio rather than the “shoot for the moon” component. The less volatile your investments, the less likely things can go wrong. Furthermore, for the same reasons I love investments that pay interest and dividends along the way in order to reduce the need to eat into capital during down markets, I love similar investments inside UL policies in order to generate cash to pay the annual premium costs.

Fortunately, there are an ever-increasing number of investment options. One insurer actually offers more than 200 investment choices for UL investors, although I am not completely convinced that more is always better. Many of these are mutual funds, often the same ones you could select within an RRSP or an open account, but they aren’t the only game in town. Here are a few of the more innovative choices:

A Mortgage Investment Corporation. BMO offers you the chance to invest in a portfolio of mortgages held by a Mortgage Investment Corporation (“MIC”) that would pay around 6% and is a non-stock market investment. Since this is a private investment, this means not having to worry about stock market fluctuations and, despite a low interest rate environment, earning a yield that is probably higher than the one used to illustrate the performance of your UL Policy. It also means that yield should increase relatively quickly when mortgage rates go up, as the mortgages are all two years or less and there are always mortgages coming due and fresh money is being lent at the new market rate.

  • A Stock Market Investment that Guarantees No Losses. BMO offers the “Guaranteed Market Index Account”, which it describes as offering the security of a GIC with exposure to the TSX 60. It’s a simple proposition – you get 50% of the market upside each year but none of the downside. Although this doesn’t eliminate volatility and still means having to eat into capital during a bad year to pay premiums, it does offer some exposure to the market during good times and better protects your capital during the bad ones.


  • Absolute Return Funds. Sun Life offers a fund designed to make a yearly profit of 5% more than the overnight lending rate over every 3-year period, regardless of market conditions by using a bunch of strategies, depending on market conditions at that time. Thus, instead of claiming a successful record merely because it has lost less than its competitors, it is only successful if it’s making you the promised profit, regardless of what the market does. Furthermore, they strive to be less than half as volatile as the global stock market.


  • Diversified Accounts. Sun Life Offers the Sun Life Diversified Account that reminds me a lot of the investment portfolio you’d receive inside a Par Policy: private mortgages, some private investments, real estate, public bonds and some public equities. It also smooths returns in order to provide less volatility and predictability. At the time of this article, it pays daily interest equal to about 4% per year and guarantees that your yearly return will never drop below 0%.


  • Hybrid UL / Par Policies. Industrial Alliance offers a product called the “Equibuild” that is designed to give you the best of both worlds. The basic premiums go into a fund that generates guaranteed cash value like you’d enjoy with a Par Policy and pays policy dividends. Any extra money you contribute can be allocated to Equibuild Fund, which is the Par policy equivalent, or towards more traditional UL investments. There is also even the option to use extra money to buy an additional paid up death benefit each year. As another feature, there is a cash for life feature where the owner is guaranteed payment for life if he wants to use the policy for retirement purposes.

Obviously, there are likely other intriguing insurance investment options out there, as these are only some of the options I’ve discovered on my own and through my cadre of insurance advisor friends. I suggest doing what I do when working with financial planning clients who are potentially interested in life insurance – collaborating with a licensed insurance advisor (which I am not, as my focus is on big picture planning despite owning my Certified Life Underwriter Designation and having spent 15 years advising insurance advisors) who can make specific policy recommendations.

Unless your insurance advisor is experienced in overall financial planning and knows your situation, I strongly suggest getting a financial planner familiar with your overarching financial plan review the size, type and ownership of the policy suggested to ensure that it’s the best possible fit. Think about buying life insurance like shoe shopping – even though you need new runners for an upcoming marathon, if you buy the wrong pair or overpay, you may either not make it across the finish line or, if you do, the resulting discomfort and stress of cramped toes or living outside your budget may ultimately make the experience a lot less enjoyable.

Also, when deciding whether to own the policy personally, corporately, in a trust or as a combination of these choices, it’s important to get it right the first time, as there are often tax costs that can arise if you have to change ownership of a policy later. Unfortunately, I often get involved after the policy is already in place, when options are more limited and changes can be expensive.


Although many clients feel more comfortable with Par Policies (which I will talk about more next time), I still see UL Policies as a strong choice for the right client in the right situation. They offer more flexibility and transparency. For example, some UL policies both allow the entire cash value of the investment account to be withdrawn tax-free during life in the event of a disability and allow you to change your policy investments at your own discretion, which may allow clients to perform better over the long term if they play their cards right.

In the end, each policy has its own advantages – for example, clients planning on borrowing against their policies during retirement are often able to borrow more against the cash value of Par Policies than their UL cousins while someone planning on withdrawing directly from their policy during retirement might be better served with a cheaper UL policy with reducing insurance costs. Ultimately, I believe that insurance can become a valuable tool in many retirement plans and that the type of policy best suited to the purpose depends on the client and situation. In these days of steadily increasing income tax rates, life insurance and all the tax benefits that come with it might be worth a second look when looking to fund your retirement.

Free Webinar: Looking a Gift Horse in the Mouth – How to Make the Most out of Government Registered Savings Plans

The Federal Government has created a surprising number of different registered savings plans to help Canadians finance their futures. This informal and engaging presentation will summarize how Registered Savings Plans (“RRSPs”), Registered Retirement Income Funds (“RRIFs”) Tax Free Savings Accounts (“TFSAs”), Registered Educational Savings Plans (“RESPs”) and Registered Disability Savings Plans (“RDSPs”) work, but more importantly, it will also help you make the most out of these different opportunities – as they say, the devil is in the details. In addition to discussing most tax-efficient ways to fund these different programs and which to prioritize in different circumstances, this presentation will also focus on when and how to best withdraw money, particularly from RRSPs and RRIFs. Although registered programs can help us accumulate large sums of money for the future, this money goes a lot further if we can manage and reduce the tax bill that arises on the other end. Ultimately, it’s not the size of your accounts that matter but how much you have left to spend after the tax man has come and gone.
When:  November 30, 2017
Time:  7:30 pm EST
Cost:   FREE

Register Here

Owning and Investing Inside a Permanent Life Insurance Policy Part 2

Insurance comic

In Part One of this series, I outlined some of the considerable tax benefits related to owning permanent life insurance. This part shall deal with how to reduce risk if you do proceed, while the third article shall talk about some of the newer investment options that may help achieve this goal. For today, however, I’ll focus on other ways outside of the new investment choices, to help reduce risk.

Despite the benefits, as someone trained to see the dark cloud inside every silver lining (i.e “law school”), I see the potential minefields and quicksand that can go along with every situation, including owning permanent life insurance. Moreover, I have seen first-hand from clients inherited from other advisors some of the cautionary tales that can send chills into the spine of every financial planner who is not a sociopath. Accordingly, I want to pass along some tips to hopefully prevent you from being another chapter in the sad canon of insurance sales gone wrong, while also helping you keep your existing or future policies operating on all 8 cylinders. As I said in my last offering, permanent life insurance is like an investment portfolio – it needs to be managed on an ongoing basis in order to optimize performance.

Square Pegs and Round Holes

This article isn’t going to rehash any of my previous musing on the merits of permanent or term life insurance, although I like to think I provided a rousing introduction to the issue in Part One of the series — space is limited and, as typically seems to be the case, I have a lot to say. Instead, I propose to jot down a quick checklist of things to consider before saying “yes” to permanent insurance. Although I am a big fan of permanent insurance when the right policy is combined with the right client, the wrong product with the wrong client is a recipe for disaster.

  • Is it the right tool for the job? Although life insurance can do a lot of things well, the real question is whether it is the best tool for your main purpose? For example, although life insurance can be a great tax deferral vehicle, so can TFSAs and RRSPs, which also provide you with far more investment options and flexibility. Even if those are topped up, if investment for your own retirement is the key goal, I also suggest looking around at other options to diversify your existing investments when deciding whether or not to buy permanent insurance.
  • Too much of a good thing? Even if permanent life insurance makes sense for you, particularly inside a corporation, make sure that you’ve not purchased too much of a good thing. Although a slice of cake may be delightful and a second helping a tasty treat, that third or fourth serving is seldom a good idea. Just like the rest of your investment portfolio is properly balanced, be careful about overconcentrating too much into permanent life insurance. Although permanent insurance can be used as a very tax-effective retirement tool, particularly if used as collateral for loans to finance your retirement, I do not want my clients’ entire retirement contingent upon bank or insurance company lending practices and current CRA tax policy. In a perfect world, I still prefer using insurance primarily for its traditional purposes such as estate maximization, providing cash to pay final taxes, preserving legacy assets or ensuring that your estate is large enough to take care of everyone left behind. Although potentially using permanent insurance to fund your own retirement is an enticing option, I don’t want it to be the cornerstone strategy for paying for your beach vacations. Even when used for traditional purposes, I also like to see a comfortable margin for safety should my clients need more money for retirement than expected or their investments underperform.
  • When do you need the money? Most permanent insurance strategies can take a decade or decades to work the best after you buy the policy. They also often require many years of funding along the way as well. Accordingly, you will need to have other assets to fund your needs along the way and you also need to be relatively certain that you will be able to continue making your targeted premium payments over the long term, with some room to spare. Cashing in your policy can be very expensive from a tax perspective and many insurers have significant cancellation fees if you cut bait particularly over the first 10 years. Furthermore, like a car, you need to properly fuel your insurance policy in order for it to take you to your destination, with a little extra in the tank just in case. Accordingly, if you can’t make the planned contributions, you’re likely to run out of gas along the way and you may feel like you’ve been stranded at the side of a road without a cell phone.

What to do if Permanent Life Insurance Does Make Sense

Assuming that you’re read through the previous section and are satisfied that permanent insurance is the thing for you, the next step is ensuring that product you’ve selected fits like a bespoke suit rather than something you picked up off the rack. At the risk of wildly mixing metaphors, this part of the process is also sort of like the early stages of a relationship – it’s important to set realistic expectations in order for things to work out over the long term. Here are some ways to achieve these goals:

  • Canvass the Market. There are a lot of different insurance products out there, with many different combinations of bells and whistles. I like working with an advisor who can shop around to find the insurance product that best suits my clients’ individual needs. While one company may sell a product that is ideal for some, it might be a little too tight around the chest or have the wrong sleeve length for someone else.
  • Work with Someone You Trust. Although shopping the market is always a good idea, I also firmly believe it is vital to work with someone you think knows what they’re doing and has your best interests at heart. Accordingly, if you have someone you think is the bee’s knees, I don’t necessarily seeing it as a deal-breaker if they can’t sell you every policy under the sun so long as their product is competitive after you’ve looked around and you’re convinced that they will be in it with you for the long term. At the end of the day, you need someone who can continue to help you manage your policy in order to make it hum and sing on an ongoing basis. Although price and product both matter a lot, so does working with the right person.
  • Use Conservative Projections. I love the fact that most insurers now run policy illustrations (projected results compared to alternative investment strategies) showing results at 3 or more different rates of return inside your policies. For Universal Life (“UL”) policies, I generally prefer to see illustrations showing a 5% rate of return, with alternative illustrations at perhaps 3% and 7%. Although you may hope and expect bigger and better things from your policy, I am not comfortable with my clients proceeding unless the results look good with less-than-stellar returns in the policy and the alternative investment is assumed to outperform the policy by at least 1% before taking income tax into account. For Participating Whole Life (“Par”) policies, I want to see how things look if the current dividend scale (essentially the yield on the cash value of the policy to oversimplify things) is at least 1 to 2% less than its current rate, as I think there is a good chance rates could drop unless interest rates eventually pick up significantly. Ultimately, not only does the future performance of the policy dictate how big a payout and cash value there will be down the road; it may also influence how much money you need to put into the policy along the way. I never want my clients to be in the position of having to pay into a policy for 15 years rather than 10 because of unrealistically lofty expectations or, even worse, have to cancel or reduce their insurance at that point because it has become unaffordable. While this can’t be guaranteed, setting the investment return bar low at the beginning dramatically reduces the chance of unfortunate outcomes later.
  • At Least Consider Level Term Policies, Have a Conversion Plan or Invest More Conservatively. One of the reasons for the subprime mortgage debacle south of the border last decade were the “teaser” rates for the initial period of the mortgages. Although it saved money in the short term and allowed clients who couldn’t afford a home to purchase a place to call their own, it meant disaster when the other shoe dropped and clients had to start paying based on higher rates or even come up with lump sum cash “balloon” payments. In the permanent insurance world, UL have something that is slightly similar. Many policies allow client to base their annual required premium payments on either the cost of what it would take to buy a one year term policy each year so that each year’s premium costs more than the one before or having a set annual premium cost etched in stone for the life of the policy.

The former (“Yearly Renewable Term” or “YRT”) means very cheap rates initially that start to increase dramatically as clients age and their chances of dying that particular year go up, while fixed amount or “Level Term” policies mean essentially prepaying some of the future costs now which means bigger cheques initially, but having cost certainty for life. YRTs let more of the money you put into the policy in the early years grow in that policy’s investment fund and, if the markets are kind, this extra compounded growth is more than enough to help pay the higher insurance costs later as you age. The problems come if clients do not fund their policies as planned, investment returns are lower than expected, you have a couple bad years in a row, or the clients live to a very ripe old age. In these scenarios, the client may have to come up with extra money to pay into the policy at a time in life when it is no longer affordable, which can mean letting the policy lapse, borrowing to fund it or reducing the amount of coverage.

Thus, although YRT policies can do well if the markets cooperate, they can mean more risk later. To combat this risk, at least get quotes on how a Level Term policy performs as a comparison, plan to convert from a YRT to a Level Term a set age, knowing the pricing in advance, or reduce investment risk inside the policy. In particular, since the need to put extra money into the policy will depend on the cash value of the investment fund, shooting for lower, less volatile and less risky returns inside your policy vastly reduces the chances of having to put more money into your policy during retirement if the markets have several bad years in a row. Since most insurance funding strategies involve only paying into the policies for a limited number of years and then using the extra money contributed during this time, plus investment growth, to pay for the years ahead, this means having to sell some of your UL policy investments every year based on current stock market conditions. Thus, a few years of having to sell some of these investments at the worst possible time can crater a policy. As a result, unless you have ample additional funds to top up your policy, a large margin of safety or are invested in a specially designed policy that has or will reduce insurance fees to a pittance, I suggest looking at lower risk investments, particularly those that pay at least some income that can be used to cover premiums. Furthermore, be sure to regularly review and rebalance your investments inside your policy, just like you would for the rest of your investment portfolio.

  • Be Clear on When Contributions Stop. Some permanent policies stop asking for premiums at age 100 while others make you keep paying for life. Why take the risk of having to continue paying until you are 115 if medical advances continue to mount if you can get a comparable policy where you’re done at age 100 come hell or highwater? It can be very stressful to clients in their 90’s and their families if funds are tight to realize that a policy could lapse if the client lives to a century. Knowing that the policy will be “paid up” at that time lets everyone breath a bit easier, allows people to plan so that can ensure the policy survives those few more years and, even better, lets them know that the fund may start to grow again from age 100 onward. If insurance premiums become a thing of the past at that time, the size of the investment fund now may be able to take off again since you now have the money you would otherwise need to pay in premiums each year staying in the fund and compounding.
  • Make Sure the Right Person or Entity Owns the Policy. Chess and financial planning are both about how you move and organize your pieces. Permanent insurance is the same. To get the best results, you need to make sure that the policy is owned where it can do the most good. Furthermore, it can often be quite expensive if you need to switch it up later, so it’s vital to get it right the first time. Although I love owning insurance corporately for the tax advantages, this can be a disaster if you are planning to sell the company later or perhaps close it down during retirement. In both instances, there can be a very large tax bill that could have been completely avoided when trying to remove an insurance policy from a company, particularly if there is a large cash value. In other cases, if creditor protection, privacy or will challenge avoidance are the key issues, it makes sense to own the policy personally. Finally, some people may be better off owning life insurance inside a trust, particularly since the investment fund in the policy is exempt from the 21-year rule that otherwise taxes unrealized capital gains inside the trust at that time. Ultimately, professional advice is essential in this area specific to your own situation and goals.

Regular Repair and Maintenance

For perhaps about the 51st time, I shall repeat that owning life insurance is like owning an investment portfolio – both require regular repair and maintenance. In fact, I see life insurance as one of those fiddly foreign cars that aren’t properly understood by all mechanics with a host of issues not associated with domestic models. Here are the things to keep on top up if you want to keep your permanent insurance policy in peak condition:

  • Pay as Promised. As stated earlier, just like you need to keep gas in the tank if your car is going to take you to your destination, you need to make the targeted contributions or adjust your route along the way in order to achieve a less ambitious goal. If you have not properly funded the policy, it is unrealistic to expect that you won’t have problems later. Accordingly, if life changes and you can’t make your expected contributions, you need to work with your advisor to recrunch the numbers to decide on next steps. It could mean cancelling the policy, reducing the amount of insurance coverage so the money already committed won’t run out or switching to a less expensive type of coverage. In some cases, you may also consider donating it to charity, as this can often produce a surprisingly large tax credit for older policies.
  • Rebalance and service. It may be the case that you have several types of different investments inside the policy, which can often be a really good idea for larger policies in order to diversify risk. Just like you do for the rest of your portfolio, if you have a UL policy, you will need to look at the underlying investments at least once a year to ensure that you have the right investments for your current time horizon and that they remain in the right proportion, as well as reviewing performance. As a word of caution, however, for some policies, particularly in the early years, there is a minimum amount that has to be on hand to go into each fund at a time. If there isn’t enough money to make the minimum contribution, the money sits in a low interest account until you have reached critical mass. Thus, rather than initially contributing to 5 different funds inside your UL policy, you may need to narrow down your choices so your money actually gets invested promptly or plan to regularly switch how each fresh contribution is allocated so you still get diversity but not at the expense of having too much money sitting on the sidelines. If nothing else, it’s good to be clear how things work for your policy.
  • Do the 100-point inspection. Most people know that retirement projections are just educated guesses based on a host of variables and assumptions rather than fact. Insurance illustrations are the same way. Your investments may underperform in your UL or exceed expectations. Your Par policy may decrease its dividend payments, stay the course or, hopefully, one day, increase them again. Accordingly, it is important to recrunch the numbers at least every few years in order to see if you are on target and, if not, to discuss changes. For cars, it is a lot easier to take action when there is just a rattle under the hood than when the engine seizes. For insurance, it is a lot easier and less expensive to fix your policy by putting in some extra money or reducing coverage many years before the policy actually runs out of money rather than trying to come up with a solution when that time is already nigh at hand. At the same time, review who you have selected as beneficiaries, as well as your investment mix and related issues as outlined in the previous bullet. This is also a time to review the total amount of coverage you require and to see if it needs to be topped up or if you can either reduce some of your permanent policy or perhaps cancel term coverage that you have carried until now. Finally, if you have YRT premiums, keep up-to-date on how your premiums are scheduled to increase and discuss whether it makes sense to switch to Level Term coverage at that time instead.


Despite my natural focus as a finder of dark clouds and my many words of warning in this article, I still see permanent insurance as a wonderful solution for financial problems, but just not for every problem. As most people selling insurance spend more time talking about what can go right, however, I just wanted to provide a counterbalance so you can get the right policy in the right amount for your situation and, just importantly, know what steps to take after policy issuance to keep things on track once you are the proud owner of a policy to call your own.

Although I fervently desired to have enough space to also discuss some of the newer investment issues inside UL policies today that can reduce risk, that will have to wait for another day.