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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 29^th, 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

Over recent years, the issue of where you plan on traveling to, as well as where you have recently traveled has taken an increasing role in determining your insurability for life, and all forms of disability insurance including long term disability and critical illness protection. This article will serve as a guide in understanding how this issue may impact both new applications and any existing coverage you have.

General discussion

Some years ago, after 9-11, all major insurance companies in Canada started to look more closely at insurance applicants’ travel histories and travel plans. Companies have determined that if an applicant has specific “plans” to travel to a particular country (or even a specific area or part of a country) in the future and/or returned from a trip within the previous one to two year time frame, that this will impact how the plan will be issued.

Which countries are on “the list”?

Each insurance company has a “black box” of countries around the world that will impact their underwriting decisions. Underwriting, as I have mentioned in previous articles, is the comprehensive process of determining your insurability. No company, in my experience as an independent advisor, will divulge their entire list. What adds additional layers of complexity to this, is that “the list” changes over time. Countries I have seen include most Middle Eastern countries such as Syria, Lebanon, Israel, Iraq, Iran, and Afghanistan, as well as countries such as China, Brazil, and other countries in Southeast Asia.

The impact on new insurance applications

In my experience over the years in having submitted thousands of life and all types of disability applications, the insurance companies will offer coverage in one of three ways based upon the travel information provided.

1. Standard acceptance

   • This includes no restrictions whatsoever on your plan

2. Decline

   • No plan will be offered to you at this time. Companies however will often offer “reconsideration” in the future once you:

     1. Complete your travels and have not travelled to the restricted countries in the last two years

     2. Show no plans to travel again to the particular country in the foreseeable future

3. Travel Exclusion

   • This means that the insurance company will approve you for the plan you have applied for, but that it will contain one of several benefit related restrictions. It has been my experience that insurance companies will often reconsider these exclusions for removal over time, and that most applicants, once learning how these exclusions actually work, are quite willing to accept them. The most recent ones that I have seen include:

     1. You will not be insured if you travel to a specific country (life and disability)

     2. You will not be insured if you travel abroad in general (life and disability)

     3. You will continue to be insured if you travel abroad (or a to a particular country) but benefits will not commence until you return to either Canada or the United States (disability)

     4. Same as iii, except the “elimination period” as noted in your contract, will not commence until you return to either Canada or the United States (disability)

The impact on existing coverage

1. Guaranteed non-cancellable coverage

• If you have an individual life or disability plan that has been purchased through an insurance advisor, chances are the plan cannot be changed or impacted by your travel plans. Review your policy contract for the actual wording.

1. Association (CDSPI) coverage

• If you have this type of coverage, as it is not guaranteed and the benefits (as well as premiums) are changeable, there is a risk that your travel plans could impact your plan and potential benefits at some point in the future.

How do the insurance companies differ?

Insurance companies differ in the following ways:

• Countries that are on their particular list will influence their underwriting decisions;

• How travel to these particular countries will impact an applicant;

• How they phrase travel questions on their applications. For example, some companies inquire as to your travel history over the past year as well as travel plans over the next 12 months, while one particular company only asks about future travel plans.

What should I do?

1. Avoid advisors who utilize scare tactics as a sales tool in getting you to purchase coverage. For example, advisors who tell applicants not to travel abroad until they purchase coverage.
2. If you would like feedback and/or are concerned about how your travel history or future travel plans may impact your insurance planning, request that your insurance advisor “anonymously” submit to a number of companies to see how each would view an application from you.
3. Consult with an insurance advisor who is independent and represents all major insurance companies.
4. Ensure that your advisor is familiar with the differences in insurance applications and travel exclusions in general.

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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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