Fine print can trip up insurance policyholders
Universal life designed to offer premium holidays But some policies can be cancelled for non-payment
JAMES DAW
Dec. 15, 2002. 01:00 AM

Many consumers may not know they could lose thousands of dollars if they cancel or skip one payment for their universal life insurance policy. The same would be true for other types of insurance. But universal life policies, which nearly 200,000 Canadians will buy this year, are assumed to have more flexibility.

Sales of the complicated policies soared when the stock market was booming. They climbed from about 20 per cent of insurers' premium revenue in 1994 to about 60 per cent during each of the past three years. "The unfortunate thing is that the little guy, the one who has fallen on hard times, will be hurt most by the hidden surprise," says Toronto insurance broker Bruce Cappon. This touchy issue is one that the companies with the most restrictive contracts were not even prepared to discuss when the Star attempted to collect data for a chart.
Universal life, or UL, combines term insurance and a side fund with a wide range of investment options. The tax-sheltered fund is intended to permit relatively level premiums until late in life. In the early years of the policies, the fund value can be used in varying degrees to pay for premium vacations. But the degree of flexibility among policies is vast. A 40-year-old man who paid Empire Financial Group $1,810 each year for three years in order to have $250,000 of coverage could stop payments and coast for another 137 months.
But, if the same man held an equivalent policy at Maritime Life Insurance Co. or Canada Life Financial Corp., he could only coast for four months on the fund values, which would be, respectively, $2,967 and $4,160.