Life Insurance Premiums Set To Rise In Canada
Life Insurance Premiums Set To Rise In Canada
It doesn't matter where you life, Calgary, Alberta or across Canada, the price for life insurance is going up. An announcement recently from Canada's largest life insurance company, Manulife Financial, spells the end of the low cost premium environment Canadians have enjoyed for the last decade. Here is a copy of the announcement to all Manulife insurance brokers sent out this week:
Advance notice of changes to Manulife's insurance products
The following changes are being made to InnoVision, Security UL, Limited Pay UL and UltraVision:
Effective December 4, 2010, level cost of insurance rates are increasing in most cells for any new coverage or any new coverage on an existing policy on InnoVision, Security UL, Limited Pay UL and UltraVision (UltraVision offers a switch to level cost of insurance option).
Effective March 2011, the universal life minimum interest rate guarantees on InnoVision and Security UL will be reduced by 50 basis points.
In addition, effective March 2011, rates on Signet (T100) and T100 Family Term, Business Term will increase.
We are in the process of finalizing all the rate changes and will share more details within the next few weeks.
Why these changes are being made
Manulife's life insurance products are some of the best in the industry. They offer superior value, flexibility and protection. Life insurance products are priced based on a number of assumptions, including interest rates. As you know, interest rates are at historically low levels. With these low interest rates, the current pricing on many of our product features is not sustainable for the long term. As a result, the rates on our universal life level cost of insurance, Signet and our Family Term and Business Term T100 products and the minimum interest rate guarantees on InnoVision and Security UL are changing.
While we can't predict what will happen in the future, our assumption in making these changes is that interest rates will not return to more normal levels for some time. Our commitment to you, your clients and our shareholders means that this action needs to be taken to ensure the long term viability of these products. The extremely low interest rate environment is not unique to Manulife, but to financial services companies around the world and we expect our colleagues in other Canadian insurance companies to make similar pricing adjustments in the near future.
Why are premiums going up?
The cost for insurance, reflected in the premium charged to you, is a factor of three things:
The mortality rates: how many and at what age does the general Canadian population die. The risks attached to any one person's life are great, but when combined together in large groups, the average statistics hold true. The Canadian insurance companies can predict the performance of their pooled risk more accurately as the group of insured persons gets larger.
Internal management by the insurance company: this is reflected in how well the company is run, controlling costs and maximizing profits. A well run insurance company that does not waste money can in turn be more competitive on their premium pricing. It is also a factor of how well the company controls risk. When accepting clients for insurance, does the insurance company take too many chances on clients with poor health, or do they tightly control their underwriting and charge clients the correct price for the risks they represent? Better risk management means fewer unforeseen claims, and this in turn can keep premiums down.
The long term interest rates in the market: insurance companies need to reinvest all those premiums they collect. It is law in Canada that insurance companies must set aside a minimum of 190% of all future expected claims into a reserve fund. These reserves, often called financial strain by the insurance company, must be invested in secure assets, like long-term government bonds. No risk can be taken with the reserves. In the ongoing low interest rate environment we are currently in, the strain from these reserves is growing.
So, here is the problem. The third point, regarding long-term interest rates, has really begun to hurt the insurance companies. When many of these life insurance products were developed and price, 5 or 10 years ago, the long-term interest rates in Canada were much higher. Also, the forecasts for the future did not foresee rates going so low and staying there.
Insurance companies like Manulife have been holding off on making these changed in the hope that interest rates will rise and the economy will recover to more robust growth. Well, as we all know, that has not yet happened. So, the companies have few options. They could tighten up their risk management even further, but that has already been forced as tight as it can go. It has become more and more difficult to qualify for insurance in Canada today than 10 years ago. More often people are being rated for insurance (asked to pay a higher price for substandard risk), and less and less clients are qualifying for preferred insurance rates (reduced premiums for healthy clients). The insurance companies can try and run a tighter ship, waste less money, but isn't that how all corporations operate anyway. Good management will see the best run companies' rise to the top.
Mortality rates are outside of the insurance companies' control. How long people live is a factor of how healthy they live and not taking undue risks. As we have all heard, the North American population is getting heavier, and this weight gain is having long-term health effects. Doctors today are warning that for the first time in modern history, children being born today will on average have a shorter life span than their parents. This long-term mortality trend is also a major concern for insurance companies when pricing their insurance products.
The Solution
Look to buy your life insurance NOW! Manulife is the first Canadian life insurance company to announce the price increase. Once Manulife changes, and they are the biggest life insurance company in Canada, the others will follow. If you have been thinking about getting life insurance, but are still on the fence, you must act now, or be prepared to pay a significantly higher price in the near future.
If you need a quote on the most competitive insurance rates in Canada today, please feel free to contact us at Life Guard Insurance. Act now and save a lot of money in the long-term. When to Acquire Long Term Care Insurance Long term Care Insurance – Why is it Essential? The Light behind Long Term Care Insurance Scabies Mites And Their Life Cycle What are Long Term Care Insurance and What Can it Do for You International medical evacuation insurance – life and death decisions Cheapest Term Life Insurance Insure or Save - Can Smart Investment Make Your Life Insurance Redundant? What Happens Under My Term Life Insurance, Income Protection and Trauma Insurance Policies if I am diagnosed with Cancer? Primerica Life Insurance Policy: Making Money With Network Marketing Long Term Insurance Quotes - Why Is It In Your Best Interest To Get Them? Why Life Insurance Is So Important Long-Term Care Insurance – Vital Questions You Need to Know