My Overview of the Canadian Life Insurance Industry
I know that writing this piece is going to provoke a reaction from many fronts – and that is GOOD – it means people are thinking for themselves and challenging the status quo! Regardless, I am going to present my thoughts for your consideration.
In concept, insurance has been around since Greek and Roman days and evolved through France and other parts of Europe through “tontines”. If you want to purse history some more, see one of my blogs at www.money.ca. The Canadian Life Insurance industry goes back to the mid 1800s for its roots. Initially, there was only one product – ordinary (or whole) life. You paid a premium, there was some build up of cash if you cancelled before dying and your beneficiary collected money when you died – you paid premiums for your entire life. Nice and simple back then – now where are we?
Depending on the day of the week, products are added and withdrawn as part of the normal impact resulting from consumer choices, government policies and intervention and social influences. Certainly, the changing global investment climate has had a major impact on product design and pricing for both new and existing products. Today are there more than 100 completely different products available to consumers covering variations for life insurance, disability insurance, critical illness coverage and long-term care benefits plus investment products similar to GICs and variable products that are similar to mutual funds. Prices for insurance products – all of them – are on the rise after several years of declines. Primarily this is due to changes in the investment climate and operating costs. Don’t look for them to drop in the foreseeable future.
On the pure life insurance side alone, products range from current versions of the original ordinary life policies to ones where premiums and death benefits can fluctuate – some under the control of the policy owner and some controlled by the insurance companies. Generically, life insurance products are broken down into guaranteed and non-guaranteed and then further segmented between Term Insurance, Universal Life and Traditional Whole Life coverage. It does get confusing – and frustrating – for both consumers and advisors.
On the “investment” side of the industry you have products such as GIAs – Guaranteed Investment Accounts – that operate and offer rates similar to GICs and Term Deposits offered by banks, trust companies and credit unions/caisse populaires. You also have available investments that operate in a manner similar to mutual funds – usually called segregated funds but correctly called Individual Variable Insurance Contracts or IVICs. These products contain minimum guarantees for the market value and death benefit for your investment according to their terms and conditions. Guarantees can range from 75% to 100% depending on the product you select. All investment products sold by life insurance companies have additional features not available through banks, trust companies, credit unions/caisse populaires including the ability to have a named beneficiary and enhanced protection against claims by creditors. A well-qualified advisor is necessary to ensure that you fully understand the complexities of IVICs.
The key is working with a professional advisor – and they come in many disguises! Some are associated primarily with a single insurance company or dealing entity while others go the pure “independent” route. None is better than the other – they are different and serve different roles and tend to develop different types of relationships with clients. You need to find an advisor with whom you can relate – do they speak your language – and I don’t mean English, French, Italian, Hindi, Punjabi, Mandarin, Korean, etc. – I mean do they use words to which you relate easily and understand? Do they communicate in a simple and uncomplicated manner? Do they treat you as an equal part of the process? Do they answer all of your questions clearly?
Getting a referral from a trusted friend or family can certainly simplify the process of finding such a person. You can also search the internet using your favourite browser and search engine. Professional qualifications are always important – but the key to being satisfied is the relationship you develop with the advisor – not the number of initials after their name (I’m one to talk!). You can check out my blog at www.money.cafor further information about the professional credentials you can expect to find with well-qualified advisors in the life insurance industry.