The year-end rush to sell policies, sparked by tax rule changes, caused individual life insurance sales to skyrocket in the fourth quarter of 2016, says LIMRA’s latest report on insurance sales in Canada.
With $753 million dollars in annualized premiums,individual life insurance sales grew by 106 per cent in Canada in Q42016 compared to the same quarter the year prior.
The Q42016 sales rush can be explained by the introduction of changes to the tax exempt test that came into effect Jan 1, 2017 and have now reduced the ability to use individual life insurance as a tax shelter. Policies sold before the changes took effect are grandfathered under the old rules.
The majority of the additional sales seen in Q42016 involved high net worth clients and high face amounts. In terms of the number of policies, sales grew by 16.8 per cent over the previous quarter with 222,622 policies sold in Q42016.
Matthew Rubino, who authored the research conducted by LIMRA, says the significant increase in premiums sold was the result of the new tax rules.
“Growth in premiums was driven by universal life (UL) and whole life (WL) sales, with WL growth more extreme, he says. The majority of the increase was from participating whole life products…UL growth was strong for annualized premium and face amount. Growth was highest for level and limited pay products, which were more heavily impacted by the new tax law.”
The size of universal life policies grew, adds Rubino. “Average policy size rose above the same period last year, driven by large growth in both UL and WL. While policy sales increased for these products the increase was less extreme, indicating that agents focused on getting higher face amount policies in force before the new tax law took effect.”
He observes that this is the ninth consecutive quarter of premium growth for universal life insurance.
In Q42016, term insurance sales were flat. This product was not affected by the new tax rules.
The independent sales channel particularly benefitted from the sales rush. Rubino says, “independent agents’ UL and WL policy sizes were much larger than those of their affiliated counterparts, as their more affluent clients were more likely impacted by the exemption changes.”
Growth was seen in all distribution channels during 2016, says Rubino. “The independent advisor channel was affected the most by tax changes, shifting from a 7 percent decline in third quarter 2016 to a 41 percent increase in the fourth quarter,” he says. Independent channels include independent advisors, MGAs and national accounts.
“WL growth was present in every channel, with the independent advisor channel enjoying an increase of 84 percent,” says Rubino. “UL growth was also present across channels. In relative terms, the national account channel had the largest growth in 2016 at 60 percent,” he adds.