Many people reading this article may be thinking they already have life insurance in place so this won't affect them. Unfortunately their thinking will be wrong. The reality of the insurance industry is that they rely on both claims experience and investment returns to make their insurance products work. Of course you may read this as a sales pitch as well but the reality is already there. Canadian insurance giant Manulife Financial, whose rates for universal life insurance surged by as much as 12 per cent as of Oct. 15, 2011, says the company needs to rebalance the pendulum between the premium it charges the client and the risk it is taking.
It was their second round of repricing in 12 months. They also led the market with a round of repricing in December, 2010. The increases aren't just at Manulife. Many of the other insurers will or have followed suit. In an environment where bond yields have dropped sharply and interest rates are sitting at rock-bottom lows, insurance companies are struggling to fund the guaranteed payout promised in their universal policies. The pricing for their insurance products was based on much higher interest rates. Canadian insurance companies will also soon have to align themselves with international financial reporting standards, which will cost money.
Unlike term insurance, which provides a benefit for a set period of time and can expire before the person dies, universal or permanent life insurance provides coverage for life. The sentiment in the insurance industry is that current prices for permanent life insurance are unsustainable in today's market environment and that more increases are in the cards. This means that if you currently have a term insurance policy and it makes sense in your financial plan to convert that policy to a permanent one such as whole life or universal life the time to do it is now before rates go up further.
Permanent life insurance is also an important part of any comprehensive wealth management plan. It is one of the three places you can grow your money tax free other than an RSP and a TFSA. You can also have access to those funds on a tax-free basis. Remember that the three main uses for life insurance are creating wealth, protecting wealth and transferring wealth in a tax efficient manner.
It is recommended to sit down with a professional who looks at what your needs are and not just how much they can sell you. Even people who already have life insurance should think about revisiting the subject, to make sure their needs have not changed. Because rates increase as we age, we experience health issues that can affect our rates and insurability, and because the insurers may have to increase their rates so we can't know with certainty the cost of waiting to put the policy into place. In other words, waiting can always be a risk.
So even though investing is usually the priority in a wealth management plan it is also important to look at risk management and specifically how to insure your risks. That means not just life insurance but all other issues as well such as health, disability, critical illness and long-term care. Our insurance representatives can review your insurance situation and can source solutions from BMO Insurance, Canada Life, Empire Life, Industrial Alliance, Manulife Financial, RBC Insurance, Standard Life, Sun Life, and Transamerica Life. Give us a call if you wish to discuss further.