Since October, myriad new permanent life insurance products have surfaced, tailored to the 2017 tax rules. Insurers are also tweaking existing products to conform to these rules.
The era of policies with generous tax advantages closed when the changes to the federal Income Tax Act took effect on Jan. 1. The possibility of accumulating funds without affecting a policy’s exempt status evaporated for permanent life insurance. The tax-free savings capacity of universal life was also hard hit. Effects are being felt mainly among insured with high net worth.
The accumulation of tax-free funds in universal life has been slashed to one-sixth of the original amount, depending on the age of the insured and the duration of the policy. For company shareholders, the portion of the death benefit of their policy that may be credited to the capital dividend account has shrunk. Now, the estate will receive less tax-free funds.
Tax laws sparked changes
Insurers had to revamp several products or replace them with new ones. A table compiled by the life insurance product intelligence centre InsuranceINTEL shows that product launches have mushroomed since October 2016. The new tax laws have largely sparked this hyperactivity, which lingered into January.
Some ousted products were not replaced. For example, Empire Life announced in its 2016 results that it would no longer sell universal life insurance. The insurer acted quickly, pulling its universal life products Trilogy and Trilogy Plus on Oct. 15. At the same time, participating whole life Optimax Wealth replaced Optimax. On Jan. 1, the insurer added an eight-premium payment option to Optimax Wealth and to another participating product, EstateMax.
On Oct. 1, Wawanesa Life discontinued its Universal Life product. On Oct. 8, UL Mutual stopped selling its UL product Ulysses 2000. These two insurers have not yet announced replacement products.
In whole life, Foresters Financial discontinued Easylife on Dec. 16, and iA Excellence cut Whole Life insurance paid up after 10 years, 15 years, 20 years and up to 100 years on Dec. 28. Canada Protection Plan, a preferred distributor that markets products under its brand underwritten by Foresters, launched seven products on Oct. 28 to replace the series it eliminated. Tax laws partly spurred these decisions.
Sun Life Financial ended Sun Par Protector Life, Sun Par Accumulator, Sun Universal Life, Limited Pay Life and Sun Universal Life MAX on Jan. 1. On that date, the insurer also launched Sun Par Accelerator, Sun Par Protector II, Sun Par Accumulator II and Sun Universal Life II.
Sun Life notably allowed its advisors to submit temporary term life insurance applications until Dec. 31, for amounts up to $10 million. The insurer could thus accept risks up to that date. It can now convert these temporary policies into policies with the 2016 advantages. It has until March 31, 2017 to remit them to the customers.
Desjardins Financial Security (DFS) will launch a universal life product on April 23. The insurer eliminated its universal life insurance platform Pace on Jan. 1. Later that month, Whole Life Guaranteed and Foundation were also shelved.
On Nov. 14, ivari launched ivari Universal with bonus, ivari Universal no bonus and also enhanced version of prosperity Universal Life Insurance. On Dec. 5, the insurer discontinued two of their universal life products: WealthADVANTAGE and EstateADVANTAGE. Note that ivari Universal does not allow multi-life insurance coverage, while the two former products accepted up to 15 lives.
Several other insurers also cut multi-life coverage, including Equitable Life Insurance, iA Financial Group and SSQ Financial Group, when they modified their existing universal life insurance products. DFS and Sun Life Financial made this change through their new universal life insurance products.
Manulife kept multi-life protection on its Innovision and Security UL products, which can cover up to 20 lives. The insurer had never offered it on Manulife UL. BMO Insurance changed two of its three universal life insurance products, LifeProvider and Life Dimensions, and kept multi-life coverage for up to six insured in both cases. However, it curtailed the product Life Dimensions Prestige. BMO Insurance has yet to announce whether the replacement product, Wealth Dimensions, will be multi-life.
Interviewed by The Insurance and Investment Journal about the end of Pace, Nathalie Tremblay, health products manager at Desjardins, explained that the universal life platform could not remain intact under the current tax rules, similar to all universal life offered in Canada since Jan. 1, 2017. She points out that multi-life protection is another casualty of the new tax rules.
Tremblay adds that even if multi-life coverage may cover the partners in a company, it was common to see a couple insured under this option. Often, one of the spouses had most of the accumulated funds, and generated the largest tax room.
“Regardless of who died first, the survivor could be paid the accumulated funds in a tax deduction based on the larger tax room. The tax authorities have now put their foot down: the fair share of the accumulated funds has to be attributed to each insured,” Tremblay says.
The wave of products is coupled with price hikes. For example, SSQ Financial Group adjusted the prices of permanent life on Jan. 24. The products affected: SSQ Level T100 universal Life (UL T100), Term 100, Whole Life 100 and Whole Life 20. For the first three products, the average increase was 7%. The price of the accelerated payment product Whole Life 20 climbed 12%.
SSQ is not alone. Insurers generally believe that all permanent products will be affected. Level cost and permanent UL insurance with accelerated payments will see steeper price hikes. “SSQ did not raise rates in the fall of 2016 as we wanted to simplify the New Business/Underwriting process through the year end. We are now catching back up with Industry rate increases in these products. Our rates will be competitive in the marketplace given industry price increase,” the insurer noted on its website.
A problem rarely arises in isolation: the tax increase on premiums in some provinces forced SSQ to increase the minimum premiums required to cover the cost of universal life insurance riders slightly. “However, the cost of the riders remains unchanged, the insurer explains on its website. Newfoundland and Labrador increased this tax from 4% to 5% on July 1, 2016, and Prince Edward Island from 3.5% to 3.75% on Jan. 1, 2017.
Launches and changes to life and health insurance products from October 2016 to January 2017