October 12th, 2011 | Author: Mitch Reynolds

Universal Life Insurance Premiums Set To Rise, Again

If ever there was a time to buy universal life insurance, it’s now!

Universal life insurance premium increase in Canada Another round of price increases for Universal Life Insurance? Here we go again! It was only in December of 2010 that Manulife started the ball rolling by increasing premiums for their universal life insurance new business. And it’s Manulife again that is announcing the first major price increase in round 2 of Canada’s rising cost of life insurance. So far the price increases are limited to universal life insurance policies; those with level cost of insurance. The warning here is that other policies that are sensitive to long term interest rates, like whole life insurance, might be re-priced too.

Permanent life insurance policies that have a life-time guaranteed cost of insurance, or level cost of insurance, are the policies that affected. This is bad news for Canadian life insurance shoppers since the guaranteed level cost of insurance for life is the most valuable guarantee you can buy of any financial product today. Insurance companies are frantically trying to design new products that give retirees guaranteed income for life without bankrupting the insurer. A guaranteed cost/income for life is EXTREMELY valuable to the consumer, but if the insurance company can’t make money and goes bankrupt selling it, what is your guarantee worth then?

Why are universal life insurance premiums on the rise?

A good article in the Financial Post called The time to buy insurance is now, written by Garry Marr, helps explain the problem insurance companies are facing. The fundamental problem is poor investment returns and low interest rates. Insurance companies determine pricing for their life insurance products based on what they believe they can earn in interest and growth by reinvesting those premiums. Insurance companies are not allowed to take much risk with the premiums they have to reinvest, and must put them into government bonds, highly rated corporate bonds and other secure investments. With interest rates at an all time low, and seemingly stuck there, insurance companies are losing money on every new level cost universal life insurance policy they sell today.

The real problem is the young Canadians who are buying permanent life insurance. Sure it is a good idea to lock in premiums while you are young. There are even products that can give you a guaranteed paid up policy in 10, 15 or 20 years. This is great for the consumer, and something life insurance brokers in Canada have been preaching for years, but I’m not sure the insurance companies really wanted as many sales as they got. Buy locking in a premium for life, or even offering a quick pay policy with premiums for 20 years or less, the insurance company is extending a guarantee that they are uncertain they can make a profit on. With the current low interest rate environment, they definitely can’t make a profit over the life of these policies. Long term interest rate assumptions would have to dramatically increase for these policies to be profitable again, and as we’ve seen, low interest rates seem to be stuck at historical lows.

Does a 10% price increase really make a difference?

Premiums will be going up, that we know. In some cases it could be as much as a 20% increase (for instance a person in their 20’s buying permanent life insurance). The average price increase estimated will be about 12%, but the younger you are the higher the increase. There should be little change at all for clients over 60 buying the same policy as now.

If you are affected by this premium increase, will a small 10% increase make a big difference? Let’s look at an example. If you are a 40 years old woman in Canada, non-smoker, looking to buy a simple Term 100 policy for $250,000 (level cost of insurance for life, no cash values), Manulife today has the best price at $1,171 per year. The cost for this policy goes up on Oct 15, 2011. If the new price is 10% higher, that would mean the new price will be $1,288 annually. This is an extra $117 per year. If this woman lived to age 85, and paid these premiums for 45 more years, the extra cost would be $5,265! That is over $5,000 more for exactly the same plan you could get now, and save the $5,000!

Even though it seems like a small increase each year, it does add up to a lot of money over time. Why pay more for exactly the same life insurance you can get now for less?

Locking in a premium now is guaranteed for life

Even though Manulife will be increasing rates in the next few days, it took the rest of the Canadian life insurance industry 4-5 months to all make their premium increases. This still leaves a window of opportunity open for many shoppers to lock in low rates today. If you make an application BEFORE the cut-off date, your premium rate will be locked in. Even if your policy is finalized through underwriting after the premium increase date, the fact you made your application before the cut-off will guarantee you keep your low rates for life.

If you have been thinking about getting permanent life insurance, the time to act is now! Procrastinating now will cost you thousands.

Getting qualified advice from a life insurance broker on the best rates

At Life Guard Insurance we can help. Our team of brokers across Canada have access to all the top life insurance companies in Canada. We can help you find a policy that will guarantee you the “bargain” universal life insurance premiums that are still available today. Feel free to contact us to speak with a qualified life insurance broker to lock in your guaranteed life insurance premium today.

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