From the category archives:

General Life Insurance

More life insurance price increases

by Glenn on November 13, 2012

The race to the bottom for permanent life insurance prices continues this week with two more Canadian life insurance companies raising their rates on these products.

Empire Life of Kingston Ontario and Waterloo Ontario based Equitable Life have both announced substantial price increases on their permanent life insurance policies, specifically their Term to 100/UL variations.

The continued low interest rate environment for long term investments is driving much of these price increases.  Permanent life insurance polices profitability in the future depends heavily on earlier premiums being invested over the long term.  When those investments are basically earning no real interest, something has to make up the difference.  The other factors are mortality, expenses and profitability.  As insurance companies have limited control over the first two and are unlikely to change the third, the only thing remaining that can budge is premiums.


Join the Life Insurance Movement!

by Glenn on August 21, 2012

An enterprising life insurance broker in the U.S. has pioneered the idea of Wednesday August 2012 as being the first official “Life Insurance Movement” day. That broker, along with over 100 other life insurance brokers who actively blog, are all writing a post on “why life insurance is important for my family”. The intention is for our community to enlighten, educate, and remind consumers of the importance of life insurance for our families.

As a family man, life insurance is one of the cornerstones of our financial vision. It ensures that no matter what, my kids will be able to go to university, that my wife will be safe and comfortable in her retirement, and guarantees that our children will have an inheritance.

Of course, in order of priority, we need to worry about tomorrow first – that’s ensuring that my family can continue their standard of living should I die, that the kids can go to university and my wife can simply return to working outside our business and remain self-sufficient.

Because most of these needs eventually go away (the kids finish school and get a job instead of counting on the bank of Dad) the solution is of course term life insurance. While I own a variety of life insurance policies, the largest amount of coverage I have is with a term life insurance policy. I expect to let this portion of my coverage lapse in the future once our retirement is secure and the kids are no longer dependent on me.

So that’s why life insurance is important to me and my family – how is life insurance important to you?


Sun Life to increase life insurance rates

by Glenn on August 7, 2012

In an ever widening spiral of life insurance premium increases, Sun Life has just announced the following:

Effective September 17, 2012, we’re changing level cost of insurance (COI) rates for Sun UL, Sun UL MAX and Sun Limited Pay Life. We’re also shifting these products to an age nearest pricing basis, to be consistent with SunTerm, Sun Par Protector and Sun Par Accumulator. With these changes, we expect our products will be consistently competitive within the marketplace.

That’s a double whammy. Not only are they increasing their premiums on level premiums and quick pay products (like many other insurers), they’re also shifting from an ‘actual age’ basis to a ‘nearest birthday’ to calculate your age. This is actually in line with standard industry practice, but doesn’t serve to keep them ‘competitive in the marketplace’.


Another permanent life insurance product bites the dust

by Glenn on July 10, 2012

I’ve just received notice (July 17th) that Assumption Life is pulling much of their permanent life insurance products from the market – effective July 23rd.  That’s right, with less than a week’s notice they are pulling their level insurance cost universal life insurance and term 10 products (and a few others).

I don’t recall a time when insurance companies were actively withdrawing entirely from the marketplace rather than simply repricing higher.  And with only a week’s notice to brokers, what’s going on?

In any event, Assumption Life isn’t alone.  RBC and Equitable have both pulled some of their product lines from the market, and I expect more before the end of the year.


Dividends on life insurance policies

by Glenn on July 8, 2012

If you’ve read previous posts on this blog, you’ll notice a continued trend of life insurance companies lowering their dividend scale.  Unwary consumers may not see the impact of this on their life insurance policies immediately, but it can have large and catastrophic effects.  I’m going to cover life insurance policy dividends in four steps; how they’re calculated, how they are applied to your polices,  the consequences of all these lowered dividend scales, and the actions a consumer can take.

1) How life insurance policy dividends are calculated – the important thing with dividends is that they are not guaranteed.  Technically each year the insurance company looks at your policy and others in the same block and determine how profitable it’s been compared to the original estimates.  They take into account things like mortality, expenses, and interest on investments.  If things go well, a dividend may be paid.  If things aren’t going so hot, the original dividend scale may be cut back or reduced (which is what’s happening across the industry now).  However even the way the dividend is calculated each year is not guaranteed.  In the end, it’s up to senior management to approve the actual dividends paid – and if they decide they’re going to cut dividends without explanation or simply because their original estimates were terrible, they can and will.

2) Life insurance policies with dividends – life insurance policies that pay dividends are called ‘participating policies’.  Each year the insurance company declares a sum of money called the dividend, and applies it to your policy.  There are 5 ways this can be applied to your policy:  in cash back, savings on deposit, paid up additions, reduce your premiums, and enhanced term insurance.  That’s all very interesting, but here’s effectively what’s supposed to happen with many participating policies.  A base amount of insurance is purchased (this is the portion that produces the dividends) plus an additional amount of term insurance.  The term insurance has increasing premiums so we don’t want it around forever.  Each year when the dividend is paid, various combinations of paying the term insurance premiums and buying a sliver of paid up additions happens.  The paid up additions are basically mini whole life policies with a single premium (paid for by the dividend).  Each year as there are more paid up additions, less term insurance needs to be purchased.  The intent typically is to have the policy become paid up – the term insurance has been completely replaced by the paid up additions. With no more term insurance, the dividends on the base whole life policy plus the dividends on the paid up additions (remembering the paid up additions have no further premiums, but do create dividends) are enough to cover the cost of the life insurance. Voila, life insurance with no more premiums at some time in the future.

3) Consequences of lowered dividend scales – there are a variety of effects this can have on your policy, depending on which dividend option you selected.  But for many policies, the lowered dividends means less paid up additions, which means it’ll be a longer period until the policy becomes paid up.  In layman’s terms if you thought you wouldn’t have to pay life insurance premiums at some point in the future, think again.

4) Actions you can take – the very first thing you should do if you have a participating life insurance policy is to call the insurance company and speak to customer service.  You need to ask for an ‘inforce policy illustration’.  This illustration will project your policy features based on today’s current estimated dividend scale.  It will likely look a lot worse than the one you got with your policy.  And bear in mind – the projections are based on what they think is going to happen as of today – it’s still not guaranteed, and could still be even worse than what is shown with today’s numbers.

The solution to these problems vary based on the individual policy, however the basic premise is to consider replacing the insurance policy with a fully guaranteed life insurance policy that doesn’t rely on dividends.  By cancelling the policy you should likely see some amount of cash value refunded to you as well.  Be very very careful though – there simply is no simple answer as to whether this is a good idea or not.  You’ll need to compare the current pricing of a new life insurance policy with the amount of after tax cash value from the existing policy.  The taxes and cash value (and current insurance premiums) vary wildly by policy so we can’t generalize and need to look at each policy on a one-up basis.


Another rate increase, Industrial Alliance

by Glenn on June 13, 2012

I can’t keep up with the rate increases!  Only a few hours after RBC announced they were dropping permanent products and increasing rates comes a similiar announcement from Industrial Alliance.  IA will be increasing their premiums for their level universal life product, on average of 8-10% for people under the age of 60.  They’re also increasing premiums on their term life insurance products as well.

This is the second rate increase from Industrial Alliance in 2012.  I guess the first one wasn’t a large enough increase.


Another Term 100 product gone

by Glenn on June 13, 2012

RBC just announced that they are withdrawing both their Term to 100 life insurance and their Universal Life insurance policies.  Both of these products offered level insurance premiums for life – and they’re no longer available starting June 23.  This is another in a line of insurance companies withdrawing their lower priced permanent life insurance polices as the result of the ongoing financial strife in the marketplace.

As I’ve mentioned before, if you are thinking about buying permanent or guaranteed level life insurance, now’s the time to lock it in.  We’re rapidly approaching the time when these products will either be unaffordable or unavailable at all.

I’ve locked in a policy for myself and my family already, ensuring we’ll have the coverage at guaranteed rates going forward – no matter how volatile the financial industry is.


Another dividend decrease

by Glenn on June 8, 2012

In yet another round of decreases in non-guaranteed attributes of life insurance policies, Equitable Life has just decreased their dividend scale.  From the announcement:

Equitable Life’s Board of Directors has approved a reduction in its dividend scale, effective July 1, 2012. The dividend scale reduction is a prudent decision as the prolonged low interest-rate environment continues to put downward pressure on the yields of Equitable Life’s Participating Account.

Unfortunately for policyholders, this doesn’t just mean less money this year.  This decrease can negatively impact a variety of policy features in the years to come.  Things that policyowners count on such as cash value and paid up dates can be directly affected by this change.  Think your 20 year old policy will be paid up in another 10 years when you retire?  You may hit retirement and find out that you have another 5, 10, 20 years of paying premiums on the policy.  Decreased dividends can have this type of impact.

Equitable indicated that they are being prudent in this decrease, and I agree.  In times of difficult investments, insurance companies have to move to protect their longevity and stability.  And the easiest way to chop is through non-guaranteed policy options. I mean, that’s got to beat cost reductions at head office right?

Moral of the story, only every buy life insurance policies with fully guaranteed benefits. If you don’t, expect that at some point in the future the insurance company will use your policy as a cost saving tactic.


Foresters withdraws Term to 100, other changes

by Glenn on April 2, 2012

Independent order of Foresters (Unity Life, Foresters) has just announced that they are no longer offering a term to 100 life insurance policy effective April 30, 2012.

This is one more in a long line of price increases and market exits over the last year and a half or so.  Almost every insurance company in Canada has raised their premiums on these products or ceased offering them entirely.  And rumours abound that the rate increases are not over yet – we may be seeing another 20-50% premium increase on new issues of these products in the next 1-2 years.

But consumers aren’t the only ones helping Foresters out in the belt tightening.  From their release:  “Further, we will be changing the first-year commission rates of our Advantage Series Whole Life and Passport Universal Life products”

While I personally ignore commissions (I don’t recommend products based on my commission), I can tell you this much.  When a company tells you the numbers are ‘changing’ and don’t follow it with a marching band about rates doing down or commissions going up, then they’re telling you that commissions are going down. So, yes, commissions I assume are going down on these products.

And frankly, that’s fine with me.  There’s a large disparity in commissions between term insurance and universal life and I’d be just as happy to see that financial motivation removed from the marketplace.

(note: there’s a common misconception that lower commissions=lower premiums.  This is not the case – in fact frequently it’s just the opposite. )


Meet the new boss, same as the old boss

by Glenn on April 2, 2012

A couple of years ago AXA insurance left Canada. They sold all their insurance (life, and house and auto) to Intact Insurance.  Intact is a house and auto insurer and doesn’t focus on life.  So Intact carved off the AXA life insurance policies from the sale and resold AXA again over to a company called SSQ.  Long story short, AXA life insurance is now SSQ.

In an attempt to regain clients and re-enter the market, ‘AXA now SSQ’ has lowered their rates substantially.  When running quotes you may now see SSQ showing up.  In addition, they’ve been peppering brokers with emails about how wonderful and new things are.

Unfortunately, it seems to be business as usual.  I ceased recommending AXA to my clients a couple of years ago, due to serious and repeated service related issues.  It seems that the rebranding of SSQ over AXA hasn’t corrected that issue.  My recent experience with them indicates that the same people are still there, doing the same things they were before.  As a result, while I do have SSQ available to my clients, I continue to recommend ‘avoid’ even when they come up the least expensive.

Let’s hope the new boss cleans things up eventually so that we have another competitive player in Canada that I can recommend.