Review Your Life Insurance NOW!

February 15th, 2011

Dr. Ian Wexler

Life insurance rates are going up across the industry! If you are hearing this for the first time, I would be very concerned, as you may already have missed significant deadlines and opportunities for making changes to your life insurance portfolio that will now cost you significantly higher premiums in the future.
When did this start?
The first shot was fired by Manulife Financial in October 2010, when they gave two months notice regarding their plan to raise certain permanent life insurance rates as of December 4, 2010 by an average of 10 per cent. Since beginning this article in mid-December, several other companies have indicated that they are raising their rates for similar life insurance plans for the same reasons. They are Industrial Alliance (IA), Empire Life, and Sun Life. IA indicated that their premium increases would take effect January 17, 2011, for Sun Life January 29th, while Empire indicated that their premiums will be increasing in the first quarter of 2011.

Since all four of these company’s moves to increase life insurance premiums, it is widely agreed within the life insurance industry, that it is just a matter of time before the rest of the major life insurers follow suit. Michel Fortin, vice-president for retail markets at Standard Life, says “industry data has shown for years that premiums for permanent life insurance products were not reflecting the reality of the market, especially in the context of low interest rates.”

In the past, insurance companies customarily gave brokers at least a month’s advance warning of pending rate increases; however, those days are long gone. Recent events have seen companies shorten their notice time to one month at best, or even to give no notice or warning at all.

Are all life insurance plans affected by these increases?

As of the writing of this article, the primary life insurance plans affected are permanent life plans with built-in premium guarantees. Permanent plans include:

  • Term to 100
  • Universal Life including level pay and quick pay plans
  • Non-participating Whole Life

It may be hard to believe, but Canada is really the only market where these long term guaranteed products still exist. Many in the life insurance industry believe that guaranteed permanent products, such a Term 100, will continue to experience dramatic rate increases. Some even hold that in the not too distant future, guaranteed “plain vanilla” permanent plans will no longer be available for either a term conversion or a new purchase. This will leave anyone waiting to convert with fewer and significantly costlier permanent life insurance options such as whole life.

Why is this happening?

Manulife has indicated that “insurance companies price their level cost of insurance rates using a number of assumptions, including interest rates, mortality and expenses. As you know, interest rates are at historically low levels and the current level cost of insurance rates are no longer sustainable at these low interest rates. “

How will this affect your current and future life insurance planning?
If you currently hold term insurance, your rates are guaranteed unless your plan is through the Canadian Dentists’ Insurance Program (CDIP) which is distributed through CDSPI. Most private individual term plans are convertible to some form of a company’s permanent insurance products (without medical proof). This option is not available with the CDIP term plans.
Many individuals choose “term” life coverage as a way of economizing on premiums in the short time, with intention of “converting some or all of their coverage to permanent insurance down the road.”
Term life insurance generally helps individuals with “short term” needs including:

  • debt repayment
  • childcare and education costs

With term coverage, there is no cash value, and premiums increase dramatically at the end of the term (usually 10 or 20 years). If you continue to renew your term coverage, the cost becomes astronomical in later years and the plan eventually ceases at age 85. Essentially, you may have paid significant dollars having “rented” this coverage, with NO payout for your family at the end.
Permanent life insurance is coverage that NEVER expires as long as premiums, which are fixed and guaranteed, are paid. It is far less costly over the long term compared to term coverage and is chosen by most of our clients for some or all of their life insurance needs for the following reasons:

  • Spousal and family income
  • Estate taxes (e.g., cottage and other assets)
  • Help your children (and grandchildren) start their adult lives and careers
  • Compensate for the “unknown” future value and sale of your practice/business
  • Help look after elderly parents
  • As part of an excellent retirement income planning strategy referred to as an Insured Annuity which can provide a pre tax guaranteed yield of approximately 7 to 10 per cent on your retirement assets.

What are your best options for moving forward?

  1. Meet with an “independent” life insurance specialist who will review your current coverage, analyse your specific family and practice life insurance needs, and make the appropriate recommendations to suit your budget ASAP.
  2. Consider purchasing guaranteed permanent life insurance or converting your current term life plan now…before premiums increase any further!
  3. If your current advisor has not contacted you about these important issues, it may be time to consider choosing another advisor!

Dr. Ian Wexler is a leading authority on insurance issues for dentists. He is the founder and President of Protect Insurance Agencies Inc. in Toronto which has provided specialized expertise in life, disability, critical illness, long term care, and other insurance products and services to professionals, executives, and business owners across Ontario for over 16 years. He can be reached for questions or other enquiries at (416) 391-3764 or drwex@protect-ins.com


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