Impact of Lower Interest Rates on Insurance

Although the average person is probably not going to shed a lot of tears knowing that insurers profits are lower because of lower interest rates, lower profits inevitably have a trickledown effect to the actual consumer, and that has started to be the case in Canada if we look at life insurance in particular.

If we simplify look how life insurance companies make money, they take the premiums that we pay and invest them, hoping that the total premiums paid in plus what they make on those premiums by investing them, will be more at the end of the day than what they eventually have to pay out as a death benefit. Lately, with interest rates being so low, their profit margins have been squeezed. The result has been quite a change in the market place for life insurance, as well as other long term insurance products, including the following recent announcements:

• Standard Life totally exiting the individual insurance business in Canada.
• RBC Life Insurance suspending sales of their Term Life 100, Universal Life, Long Term Care, Quantum disability insurance, and 3 types of critical illness insurance.
• Manulife increased rates on critical illness insurance products by 30%, and level cost permanent policies by up to 12%.
• Sun Life has pulled out of the variable annuity and individual life insurance business in the U.S. altogether.
• Canada Life’s Universal Life premium on their level cost of insurance option has increased on average by 10%.

At the risk of sounding like a sales pitch, if you are thinking about buying some form of permanent insurance over the next while, now is the time because we haven’t seen the end of the rate increases!

Paul Bajus - CLU, CFP, CHS - is the Director of Director, Pensions and Corporate Wealth Management for BF Partners. Learn more about Paul.