Don’t Wait Too Long to Convert Your Term Insurance

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If you require permanent life insurance coverage for family, estate planning, business, or tax planning purposes or you just wish to accumulate money in your life insurance program it may be time to look at a permanent, level-cost solution.

Many of us purchase large amounts of low-cost term insurance to cover our needs while we are raising our families or growing our businesses. However, as the saying goes, “there is no free lunch”. Eventually, this low-cost term insurance starts to become expensive and other options should be considered.

If your health has changed and you are no longer able to qualify for a new permanent insurance policy don’t worry, your safety net is the conversion option in your existing policy.

4 reasons to convert your coverage:

  • A change in your health – you are no longer able to qualify for life insurance or you have received a sub-standard rating.

  • A change in your residency – after you obtained your policy you relocated to another country. Most insurers in Canada will not offer new coverage if you are living abroad. Since the conversion feature in your policy is contractual converting to a permanent plan is allowed no matter where you reside.

  • A change in occupation – health is not the only reason an insurer may rate (apply substandard rates) or deny your application for new coverage. If you have changed occupations and now are employed in a more dangerous job, conversion allows you to obtain permanent coverage at standard rates.

  • Convenience – once you have decided that permanent insurance is required converting your existing term insurance is the easiest way of getting it. Usually, just your signature on a conversion form is all that is required.

When is the best time to convert?

  • Sooner rather than later – Over the past few years, insurance companies have been consistently raising their long-term insurance premiums. In this case, age is more than just a state of mind. As you age your premiums increase significantly so it is always best to convert as early as possible. And to add insult to injury, insurance age changes 6 months prior to your birthday!

  • Before your term insurance renews – If you are unable to replace your term insurance at renewal because of health, residency or occupation, your premium to renew will be substantially higher than what you are paying now. Converting to a permanent plan usually makes sense plus the converted premium is locked in and guaranteed for the rest of your life.

  • Before the Conversion Option expires – Conversion options vary but usually policies are convertible up until age 65, 70, or 75. Waiting to convert will cost you more, increasing the risk of it becoming unaffordable when you may need it most. It is important not to let your option pass without full consideration.

The Conversion Option contained in your term insurance policy is a very valuable feature that varies from company to company. It may be appropriate to schedule a review to determine if you have a permanent need for insurance.

Please call me if you think you would benefit from a review of your current insurance. As always, please feel free to share this article with anyone you think would find it of interest.

Has Purchasing Life Insurance Changed Since 2020?

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During this stressful and challenging time, many are wondering what effect COVID-19 could have on their life insurance. Some may be worried that the insurance companies would make changes to their existing policy due to coronavirus concerns, resulting in an increase in their premiums or a restriction to their coverage. It should be reassuring to all that insurance companies are generally not able to change the contractual provisions of the insurance policies that are in force.

This does not mean, however, that future products will not be changed to protect the insurer against unforeseen events, or that the insurance companies are doing business as usual. It is possible that they could make changes to their future products as a result of their experience with COVID-19, but these changes are not likely to be immediate.

Insurance companies rely on actuarial (mortality) tables to price their products. Once this world crisis is over and all the data is processed, there is a possibility that actuarial tables might have to be amended which would necessitate an increase in premiums. This may take some time, but if you consider that the cost of life insurance is going up each year as you get older, one thing is certain, life insurance will cost more in the future.

It may bring comfort to know that in Canada, life insurance companies are required by the Office of the Superintendent of Financial Institutions (OSFI) to run a pandemic scenario each year. It is assumed that pandemics will occur once every 100 years. Considering the last major global pandemic was the Spanish Flu ending in 1919, the modeling would appear to be accurate. As a result of the testing, life companies are adequately reserved for pandemics and since it is already built into the pricing, unlikely to increase premiums solely due to COVID-19.

The immediate challenge in obtaining new life, disability and critical illness protection could be in the area of underwriting – the process of assessing and approving the insured for coverage.

Life Insurance Companies Prefer to Deal with Certainty

While COVID-19 might be like other viruses, it is new and unique. “We just don’t know” is how many medical professionals preface their reply to many questions about this virus. Some have suggested that even after recovering from COVID-19 there might be some delayed impact on your future health.

Going forward, insurance companies may amend some of the questions on their life applications dealing with medical history. This could have a significant effect on disability insurance or critical illness applications. It is possible that we may see an increase in policies issued with exclusions as well as an increase in cost.

Applying for New Coverage Today

Applying for Life Insurance got easier since 2020. Life insurance companies require satisfactory medical evidence in order to issue a life policy at standard rates. This usually involves a paramedical exam (including blood and urine tests) and possibly a report from any doctor who has treated the applicant.

During the height of the Covid pandemic the major providers of paramedical examination services suspended the face-to-face examination which also meant no opportunity to obtain blood or urine tests on the proposed insured.

Fortunately, many life providers increased the amounts of coverage that could be purchased without having to be examined or provide bodily fluids. The insurance company reserves the right to ask for additional information and requirements, but for many applications, a telephone interview was all that was necessary.

Even though social distancing restrictions have been reduced or eliminated most insurance companies have kept their Covid-19 underwriting protocols in place resulting in a less invasive application procedure.

Concerns With International Travel

Life insurance companies require an applicant to disclose any recent or imminent international travel to a country which might be listed on the Canadian government travel advisory site. This would include countries with a continuing or recent outbreak of Covid or other communicable diseases. If you are applying for life insurance and you have visited any of these countries in the past 30 days your application is likely to be postponed for a minimum of one month. If you are planning to visit one of the countries on the travel advisory list, it is possible that your application would be postponed until 30 days after your return.

What Else Could Happen?

Possibly insurers could build into their future policies provisions that would protect them from unexpected or unusual losses. Hopefully, this will not happen, but at this point, nothing is certain.

Should You Buy Extra Life Insurance Now or Wait?

Many people are feeling more financially vulnerable right now and want to make sure they have adequate protection for their families. The bottom line is, if you have been considering increasing the amount of your life insurance coverage don’t let the immediate challenges stop you.

Reach out if you have any questions. As always, please feel free to share this information with anyone you think would find it of interest.

Shielding Your Family From Your Creditors With Life Insurance

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Naming a beneficiary of a life insurance policy provides a significant benefit in planning and protecting one’s estate.  With a named beneficiary, the death benefit is paid directly to the beneficiary and is received tax-free. It bypasses the policyowner’s estate and is not subject to probate or any other administrative fees.  

Creditor Protection at Time of Death

Under provincial life insurance legislation* when a beneficiary is named, creditor proof status is conferred upon the insurance proceeds protecting them from the claims of the policyowner’s creditors.  This won’t apply, however, if the owner of the insurance policy is a corporation.

It should be noted that it is the owner of the policy, not the beneficiary who receives the creditor protection. Once a beneficiary receives the insurance proceeds, those funds are not protected by claims from the beneficiary’s creditors.  

If the beneficiary designation is done before the owner of the policy becomes insolvent or the creditors commence action the policy is protected. The creditors of the policyowner cannot make a claim against the policy proceeds.

One exception to this could be an action brought by a dependent for whom adequate provisions were not made.

Creditor Protection While the Insured is Living

Many life insurance policies have an accumulating cash value or investment account attached to them.   These could include annuities and segregated funds which are primarily investment vehicles.  

So how does creditor protection during the insured’s or owner’s lifetime work?  

Creditor proofing will exist if the type of beneficiary named in the policy is one of the following:

  1. An Irrevocable Beneficiary – while the beneficiary is alive, the owner of the policy cannot change beneficiary or make any material changes to the policy without the Irrevocable Beneficiary’s consent.

  2. A beneficiary named from the preferred class – when a beneficiary is a spouse, child, grandchild or parent, the life insurance contract (including segregated funds) is “exempt from execution or seizure”.

When does a policy not have creditor protection?

There is no creditor protection if the owner is the beneficiary of a policy. For example, if a husband owns a policy on his wife of which he is beneficiary, the cash value of that policy may not be protected from creditors.

If creditor proofing of the cash value of a policy is important, it is best not to have the owner also be the beneficiary.

Contingent Beneficiaries

When naming a beneficiary, it is recommended that a contingent beneficiary or beneficiaries be named.  This will avoid having any future proceeds payable to the estate and exposed to creditor claims should the current beneficiary die.

Cautions and Concerns

Generally, if a life insurance policy was purchased for specific needs, and not in an attempt to avoid creditors, the creditor proof nature of life insurance is strongly protected by law.

However, several recent court cases and legal actions appear to have eroded some of the protection previously afforded in this area.  These actions include;

  • claims of dependents

  • collection efforts of the Canada Revenue Agency

  • property claims resulting from marriage breakdown  

The good news is, for the most part, creditor proofing still works the way it was intended.  With proper planning and advice, life insurance and segregated fund contracts can provide a shield from creditors and potential litigants, giving peace of mind and financial protection to you and your family.

Group Life Insurance – Only Part of The Solution

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Ownership of individual life insurance at its lowest level in 30 years

The Life Insurance and Market Research Association (LIMRA) 2013 study shines a light on a developing problem for Canadian households:

  • Individual ownership of Life Insurance was at its lowest level in 30 years;

  • 3 in 10 households did not have individual life insurance at all.

Why Group Life Insurance may not be all that you need

If your goal is to replace income for your family for more than 2 years, you may want to add an individual policy to your group insurance coverage.

According to the same LIMRA study, on average, households with only group coverage can replace the household’s income for less than 2 years. Households with both group and personal life coverage can replace income for more than 5 years.

While group life insurance provided by an employer is a valuable benefit, it does have limitations when used as the only source for life insurance protection. Some of the reasons group insurance should not be relied on solely for family life insurance include:

  • Group Insurance is not totally portable: If you leave your job, your group life insurance typically does not go with you. While it is true that some of your group benefits may be converted to an individual plan when you leave, the plans available for conversion for life insurance are often extremely expensive and are quite limited. Given that a recent Financial Post survey reports that only 30% of respondents stayed in their jobs for more than four years, this could be problematic. Having additional personal coverage offers a safety net if you find yourself between jobs.

  • Group Life Insurance coverage is often inadequate: Most employee benefit plans provide group life insurance as a multiple of earnings up to a maximum. A common schedule is two times salary and the maximum may leave you underinsured.

  • Renewal of Group Insurance is not guaranteed: It is important to be aware that the contract to provide employee benefits is one between the employer and the insurance company. The employee has little or no control. The coverage may be cancelled by either the company or the insurer. Another concern is that future premiums may not be guaranteed.

  • Group insurance is not flexible for planning: While group coverage is usually a low cost source of life insurance, it should be looked upon as a top-up to personally held life insurance which provides the necessary protection. Proper financial planning will determine how much coverage is required to protect your beneficiaries in the event of your death.

5 reasons why consumers don’t act

The LIMRA study also lists five difficulties that consumers have when making decisions about their family protection options.

  • Difficulty in understanding policy details;

  • Are unfamiliar with life insurance;

  • Difficulty in deciding how much to buy;

  • Uncertain about what type of life insurance to buy;

  • Worried about making the wrong decision.

Contact me if you are one of the many Canadians who would benefit from a review of your options to determine if you have an adequate mix in your insurance portfolio. As always, please feel free to use the sharing buttons to forward this information to anyone you may think would find this of interest.

Copyright @ 2018 FSB – All Rights Reserved

Is it Time for Your Insurance Audit?

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Has it been awhile since you last looked at your insurance portfolio?

Are you a little vague in your recollection of all the coverage you have and why you have it?

Are you uncertain as to whether or not your portfolio reflects your current situation?

Just like going to the dentist for regular checkups is a necessary evil, reviewing your financial plan and products on a regular basis is also recommended. Circumstances can change over time and making sure your protection is keeping pace is a worthwhile exercise.

A comprehensive audit should review the following:

Is the total death benefit of your life insurance appropriate to your needs? A current capital needs analysis can help to determine this.

If your current coverage is renewable term insurance should the policy be re-written before it renews at a substantial increase? Premiums for new coverage can be significantly lower than the renewal premium of an existing policy.

Is your need for life insurance permanent? If that is the case, you should ensure you have at least some of your needs covered by a permanent plan.

Are you nearing the end of the conversion period on your term policy? If yes, this may be the time to consider converting to permanent insurance.

Is your disability protection in place consistent with your current income? If you have changed jobs does new group coverage impact your personal plan?

Are the beneficiary designations still valid for your current situation? Has there been a re-marriage that may require changing the beneficiary or ownership of the current policy?

In addition, the following are important to note:

  • If your policy is a Universal Life policy with cash value are the investment options still appropriate to market conditions and/or your risk tolerance?

  • If the policy is a Whole Life policy are the dividends adequate to now fund the premium should you wish to take a premium holiday?

  • If your policy was assigned to a lender as collateral for a loan and that loan has been repaid make sure the assignment has been removed.

Does your existing policy qualify for a reduction in premium?

  • If you have you stopped smoking you may qualify to have the premiums reduced to those of a non-smoker.

  • If your policy was issued with a substandard extra premium and your health has improved you may qualify to have the rating removed.

  • If your policy was rated as a result of participation in hazardous activities, e.g. flying, mountain climbing, heli-skiing this rating can be removed if you no longer are active in these activities.

If the current policy is for business purposes the following should also be reviewed:

  • If the policy was to fund a Shareholders’ Agreement or Partnership Agreement, does the amount and type of coverage still satisfy the terms of the agreement?

  • Are the ownership and beneficiary provisions of the policy still valid for Capital Dividend Account planning?

Reviewing your coverage on a regular basis is recommended. Connect with me if you think it would be beneficial to arrange a time to do an Insurance Audit. As always, please feel free to share this information with anyone that may find it of interest.

Copyright © 2020 FSB Content Marketing – All Rights Reserved

What Is The Right Age To Purchase Life Insurance?

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Deciding when you should purchase life insurance varies by person and the individual’s circumstance. But there are both benefits and drawbacks to purchasing life insurance at certain ages. Although the general consensus is that you should purchase when you are younger, there is no “wrong” age to consider purchasing life insurance.

That’s a good thing. Chances are your family may change or grow at different stages of your life, prompting you to consider purchasing a certain life insurance policy at different ages. Below we take a look at why it is a good idea to have life insurance at any age.

Early Career

By your mid-20’s and into your early 30’s, you probably have had a few professional jobs and some big expenses. Maybe you are also juggling student loan payments and saving for a downpayment for your first home. Since you are at the beginning of your career, your salary may be a bit lower, making any extra expense somewhat difficult to manage. But remember, you are also young and healthy, so premiums will oftentimes be more affordable.

Buying a policy at this age is probably a good idea, especially if your parents or spouse have co-signed any credit cards or loans. If you were to die suddenly, then that debt would be transferred to the co-signer of the loan or credit card. It could be a good idea to purchase a policy to make sure your loved ones are protected.

If you want coverage but don’t think you can afford the cost, consider a term life insurance policy. Term life insurance provides temporary coverage for a certain period of time and can be much more affordable than a permanent life insurance policy. Depending on the policy, this temporary coverage can also be renewed after the term ends as well as converted to a permanent policy regardless of your health at the time.

Mid-Career

By the time you are well-established in your career, your financial situation and your family will probably look a little bit different. You will likely have hefty bills, but a career that can support both your mortgage and your children. This probably increases your need for life insurance, considering that your family has expanded.

If you bought term life insurance in your 20s, you may want to consider converting your policy to permanent life insurance. Permanent life insurance is more expensive, but it will pay off in the long run. Whereas term life insurance gets more expensive every time you renew, premiums for a permanent policy are usually set when you purchase a policy and are cheaper when you are younger. This means, if you purchase a policy at 35, by the time you are 55, your premiums will be below market value for a person your age.

Pre-retirement

Most insurance companies allow the purchase of permanent life insurance up until age 80 or sometimes longer. For term insurance, however, most companies will usually not consider an application from anyone over the age of 75.

It is important to remember, that the older you are the more expensive the policy premiums will be so converting early to permanent insurance is recommended.

The good news is that you may have eliminated many monthly expenses at this point in your life. You may have paid off your mortgage and other loans that you may have accumulated over the years. This means that you may be able to afford a more comprehensive plan, especially if you are in good health.

You should speak to a trusted financial advisor about what type of insurance policy would offer you the financial stability you need as you examine what your needs will be in retirement and as you solidify your estate plan.

What Type Of Insurance Do You Need?

Life insurance is a great way to protect your family and loved ones. It can also be used to protect your business. Keep in mind that some policies are designed with an emphasis on cash value accumulation while others concentrate more on protection.

If you are considering purchasing a plan, reach out to discover what type of policy would best fit your needs.

Don’t Qualify For Traditional Life Insurance? Consider These Options

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Don’t Qualify For Traditional Life Insurance? Consider These Options

It’s no secret that traditional life insurance, critical illness insurance and disability insurance offer amazing benefits to those who qualify for the policies. Through these plans, people can protect their families, their businesses, and their livelihoods against the unexpected occurring and disrupting their lives. Unfortunately, however, these policies often don’t extend to people who are facing serious health problems and who may need life insurance the most.

Several years ago, two alternative insurance products were offered to help cover people who may have fallen through the cracks when it comes to life insurance. These two new products fall into one of two insurance product categories: guaranteed issue and simplified issue. 

Guaranteed Issue

Guaranteed issue life insurance is a small whole life insurance policy with no health qualifications. Typically, this type of policy is used for people who suffer from terminal illnesses, who may not have any other options.  

Let’s dig a little deeper to see what benefits and drawbacks you should consider before purchasing a guaranteed issue life insurance policy. 

Policy Benefits

As stated before, there are no medical qualifications for this type of policy, meaning that you do not need to answer any health questions, grant an insurance company access to your medical records, or undergo a medical exam to purchase the policy. This will sound particularly appealing if you have attempted to purchase a life insurance policy in the past but have been denied for a medical reason. 

But here’s where it gets a bit complicated: There is a two-year or three-year waiting period before your beneficiaries can receive the death benefit. This is to prevent people from purchasing this policy when the policyholder’s death is more imminent. The business model could not survive if people paid a few premiums before dying, and then their beneficiaries received a large sum. 

However, if the policyholder does pass on during that initial two-three year period, the insurance company will pay the policy’s beneficiaries the premiums along with approximately 10% interest. 

Policy Drawbacks

Typically, these types of policies are fairly expensive. While it makes sense to purchase this policy if you are in poor health, it is usually the last option for people looking for life insurance. In order to ensure that this is your best option, make sure you don’t qualify for other life insurance or critical illness insurance policies, as some policies that require medical underwriting have lower premiums and offer immediate death benefits.  

Simplified Issue 

This type of insurance can quickly provide coverage and does not require applicants to undergo a medical exam. Instead of going to the doctor or providing medical records, you may have to answer just a few questions related to your health. 

Policy Benefits

People need to be approved for a policy immediately to secure a loan or for a business situation. For whatever reason, if you find yourself needing insurance very quickly, this type of insurance could be for you. 

Policy Drawbacks

These policies are typically not as flexible in terms of their coverage or other options compared to other life insurance options. They also carry higher premiums than other life insurance policies. There are also limitations on the maximum amount of coverage that you can purchase, and typically these policies have a maximum issue amount of $500,000. 

Peace Of Mind 

These two types of life insurance are great options for people who may have underlying health issues and may need a policy quickly. While these policies may be a bit more expensive and have less flexible options than traditional insurance, they are solid alternatives for some people. 

If you feel like you may be a candidate for this type of policy, please reach out today. And as always, feel free to share this article with anyone who may find it of interest.

Who Should Own My Life Insurance?

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The planning considerations of where and how to own your life insurance can be varied and sometimes complicated. It is important to remember that who owns the policy, controls the policy. The owner has the right to name a beneficiary, assign the policy, take cash value loans or even cancel or surrender the policy. The insured does not have to consent to these transactions although there are steps available to require his or her permission when necessary. This article focuses on the main, but not all, issues in determining the ownership of a life insurance policy.

When considering the ownership of a life insurance policy on your life, generally there are three options:

  1. Personal or individual ownership

  2. A company that you own or control

  3. A trust

For many Canadians, option #1 is an obvious choice as most do not own a company and wouldn’t have any complex planning considerations to warrant trust ownership. For those, however, that do have a choice, it is important to review the advantages or disadvantages of each. The beneficiary arrangements should be appropriate for the ownership type selected. This is especially true for corporate ownership as the Canadian Revenue Agency may look closely at the ownership/beneficiary structure.

Personal Ownership

Most life insurance policies are owned by the life insured with a named beneficiary, usually a spouse. A major advantage of naming a beneficiary is that the proceeds at death may be protected against the claims of creditors or litigants. A named beneficiary of the “preferred” class (spouse, parent, child, grandchild) also protects any cash values of the policy from similar claims during the lifetime of the insured. Unless there are compelling reasons for it, do not name your estate as your primary beneficiary. Doing so could expose the insurance proceeds to probate fees as well as potential creditor and legal claims.

There are situations where the ownership of the policy may rest with someone other than the insured. This would include an ex-spouse on a policy to fund matrimonial agreements upon death. It could also be for a blended family situation that a spouse would own coverage on the other spouse to protect his or her children from a previous relationship. Naming a successor owner in these situations is recommended.

Company Ownership

If you own a company, you have the choice of having your insurance coverage held in your company. For example, if you are an incorporated professional, you could have your professional corporation own your policy. The same is true if you have a holding company that you own and control. The benefit of doing so is that the dollars used to pay the premiums are “cheaper” for the company than they are for you personally. Life insurance premiums are generally not tax-deductible and are paid with after-tax dollars. If you are paying the premiums out of corporate earned income, dollars taxed corporately at a low rate (11% in B.C. for example) are cheaper than personal dollars taxed at an average rate of 35% or more.

The after-tax cost of the earnings used to pay for the life insurance is a primary reason why corporate ownership is considered for life insurance that otherwise would be required personally. The ability to pay out the death benefit up to the full amount received by the corporation to the surviving spouse or family on a tax-free basis makes this a very attractive option.

There are, however, a few downsides to corporate ownership. The first of these has to do with the calculation of how much of the death benefit received by the corporation can be paid out tax-free out of the Capital Dividend Account (CDA) to the spouse or family member as beneficiaries or surviving shareholders. Depending on when the death occurs, there may be a portion of the death benefit trapped in the corporation and not eligible for CDA payment. In order to pay this amount (which represents the remaining adjusted cost basis of the policy) out of the corporation, an ordinary taxable dividend would have to be declared. This may be considered a small price to pay, however, based on the after-tax cost savings over the years preceding death. Also, if death occurs at normal life expectancy or a short time thereafter, usually all the proceeds are available for a tax-free CDA payment.

Another disadvantage is that, unlike personal ownership with a named preferred beneficiary, the proceeds are not protected from the creditors of the corporation. There are often other factors to consider when considering corporate ownership of life insurance, so it is important to ensure that you receive competent advice in this regard.

Aside from making sure the proceeds of the insurance end up where they are needed the most, if current and future premiums are being paid from personal funds that have already had the taxes paid, then personal ownership may be preferable.

Trust Ownership

A trust arrangement is often used in more complicated situations. For example, if there are multiple beneficiaries who need to be treated differently, or if there are multiple policies, it may be less complicated to use a trust to allow control over the policies and the distribution of the proceeds by the trustee(s).

Another scenario is where the policy is owned by someone other than the life insured who wishes a successor owner to be named if he or she predeceases the insured. An example of this would be a single parent who purchases a Whole Life policy on his or her child and needs to have a successor owner until the child reaches the age of 18. Should the owner name a sibling, a subsequent transfer of the policy to the aunt or uncle could create a taxable policy gain. It would also not be creditor proof as a sibling is not a preferred beneficiary. Use of a Trust to hold the policy until the appropriate time for the child to become owner is a way to avoid this.

An important use of a trust, specifically an Irrevocable Life Insurance Trust is for holding life insurance on the life of a U.S. citizen living in Canada. Since the trust is resident in Canada, the life insured should not be subject to any potential U.S. estate taxes upon death.

Shared Ownership

A planning opportunity exists with a life insurance policy that contains a cash value. The concept behind Shared Ownership is that the individual insured would own and pay for the cash value portion of the policy while the company would own and pay a reasonable cost for the life insurance component. Under this arrangement, the insured would be investing in a tax-deferred life insurance policy while the cost of the insurance is borne by another entity. This increases the internal rate of return on the cash value growth and would be received tax-free by his or her named beneficiary upon death.

Ownership and beneficiary arrangements are very important aspects of life insurance planning. Make sure that you receive the best advice possible in order to achieve the optimum result.

Copyright © 2020 FSB Content Marketing – All Rights Reserve

Diversifying in Uncertain Times

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Uncertain about where to invest during Covid-19? It may be time to diversify through a Participating Whole Life policy

The Covid-19 pandemic combined with global social unrest have led to an era of unprecedented uncertainty, contributing to global economic concerns and stock market volatility. Potential economic fallouts stemming from disputes between China with both Canada and the United States, along with a new recession looming just over the horizon, have left many wondering if their investments are robust enough to withstand the turbulence of the current times and any future instability.

Diversifying your assets through a Participating Whole Life policy may be key to ensure future financial security for you and your children. The new generation of Par Whole Life policies is now viewed as a separate asset class due to their stable returns. It’s important to understand that the new features of Participating Whole Life policies are not those of our parents’ generation. The new version of these policies includes the following:

  • A stable rate of return, consistent with or better than fixed income or bond-type investments of similar duration;

  • A guaranteed investment designed to increase in value every year, meaning your investment will not decline due to market conditions;

  • Tax-advantaged – your investment grows tax-deferred, possibly even tax-free;

  • Liquid – you can access your investment by several different means, some of which are tax-free;

  • Increased flexibility – some Par Whole Life Policies have been re-designed to afford a measure of deposit flexibility not previously available;

  • This investment could be protected against the claims of creditors or litigants;

  • If you became disabled, your annual investment amount could be made on your behalf and never have to be repaid.

In addition to being a viable option for investment diversification, a Participating Whole Life policy would also ensure that your family is protected from the uncertainty of death. With the re-investing of policy dividends, this type of policy is guaranteed to increase in death benefit each year.

Reach out if you are unsure where to put additional investment funds or if your investments are keeping you up at night due to these unprecedented times. As always, please feel free to share this information with anyone you think would find it of interest.

How Will COVID-19 Impact the Insurance Industry?

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During this stressful and challenging time, many are wondering what effect COVID-19 could have on their life insurance. Some may be worried that the insurance companies would make changes to their existing policy due to coronavirus concerns, resulting in an increase in their premiums or a restriction to their coverage. It should be reassuring to all that insurance companies are generally not able to change the contractual provisions of the insurance policies that are in force.

This does not mean, however, that future products will not be changed to protect the insurer against unforeseen events or that the insurance companies are doing business as usual. It is possible that they will make changes to their future products as a result of their experience with COVID-19 but these changes are not likely to be immediate.

Insurance companies rely on actuarial (mortality) tables to price their products. Once this pandemic is over and all the data is processed, there is a possibility (albeit slight) that actuarial tables might have to be amended which would necessitate an increase in premiums. This may take some time, but if you consider that the cost of life insurance is going up each year as you get older, one thing is certain, life insurance will cost more in the future. How much COVID-19, or other events yet to unfold could impact the pricing, is yet to be determined.

It may bring comfort to know that in Canada, life insurance companies are required by the Office of the Superintendent of Financial Institutions (OSFI) to run a pandemic scenario each year. It is assumed that pandemics will occur once every 100 years. Considering the last major global pandemic was the Spanish Flu ending in 1919, the modeling would appear to be accurate. As a result of the testing, life companies are adequately reserved for pandemics and since it is already built into the pricing, unlikely to increase premiums solely due to COVID-19.

The immediate challenge in obtaining new life, disability and critical illness protection will be in the area of underwriting – the process of assessing and approving the insured for coverage.

Life insurance companies prefer to deal with certainty

While COVID-19 might be like other viruses, it is new and unique. “We just don’t know” is how many medical professionals preface their reply to many questions about this virus. Some have suggested that even after recovering from COVID-19 there might be some delayed impact on your future health.

Going forward, insurance companies may amend some of the questions on their life applications dealing with medical history. This certainly might have a significant effect on disability insurance or critical illness applications. It is possible that we may see an increase in policies issued with exclusions as well as an increase in cost.

Applying for new coverage today

Life insurance companies require satisfactory medical evidence in order to issue a life policy at standard rates. This usually involves a paramedical exam and possibly a report from any doctor who has treated the applicant. The immediate problem is, with social distancing, it is now impossible to obtain paramedical examinations. The major providers of paramedical examination services have suspended the face to face examination. Also, there is no opportunity to obtain blood or urine tests on the proposed insured.

Fortunately, many life providers have recently increased the amounts of coverage that could be purchased without having to be examined or provide bodily fluids. The insurance company always reserves the right to ask for additional information and requirements, but for many applications, a telephone interview may be all that is necessary.

Changing the procedures that insurance companies have been following for decades to a format that accommodates no face to face interaction is taking time to implement. In the short term, this will increase the length of time necessary to have new coverage underwritten, settled and put in force.

Concerns with international travel

In today’s environment, if you are applying for life insurance and you have been out of the country within the past 30 days, your application will be postponed for a minimum of one month.

It is conceivable that you could be denied or postponed coverage if you plan on travelling to any of the hot spots in the next 12 months – these will likely include Italy, Spain and possibly parts of the United States. We just don’t know at this point how this will unfold. It is possible that foreign travel will likely be looked at very closely in the future.

What else could happen?

Possibly insurers could build into their future policies provisions that would protect them from unexpected or unusual losses. Hopefully, this will not happen, but at this point, nothing is certain.

A frequently asked question right now is – Should I buy my extra life insurance now or wait?

Many people are feeling more financially vulnerable right now and want to make sure they have adequate protection for their families. The bottom line is, if you have been considering increasing the amount of your life insurance coverage don’t let the immediate challenges stop you as I can assist you with the process.

Reach out to me if you have any questions. As always, please feel free to share this information with anyone you think would find it of interest.

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