The Life Insurance Your Insurance Company Wants You to Cancel

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The insurance company wants
you to cancel some policies.
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The phrase "lapse-supported life insurance policies" is mainly familiar to industry insiders. It refers to life insurance policies that insurance companies want you to cancel.

Term 100 life insurance policies and universal life insurance policies, with guaranteed level cost of insurance, are priced with the expectation that a certain number of these policies will lapse and be cancelled.

Many of the policies sold between the 1990s and 2000s are priced at very low rates. In fact, insurance companies have raised rates on these policies by over 30%, and in many cases, have pulled the policies from the market altogether.

Assumption Life, Foresters Life Insurance Company, Canada Life, Standard Life, and RBC Insurance all no longer offer Term 100 policies.

The reason they've removed these options is that these policies have become unprofitable and unsustainable for many insurance carriers. Insurance companies love when consumers cancel these policies because the cost of keeping these policies on the books can devastate their profitability.

Consumers thinking about cancelling these policies should think long and hard, as they'll never see these affordable rates again.

Chantal Marr, President Of LSM Insurance, notes that people thinking of cancelling their Term 100 or Universal Life Level-Cost Coverage should consider other options.

"If they can no longer afford the coverage, they can instead reduce the coverage or consider having a family member take over ownership of the policy," says Marr. "If additional coverage is needed, keep this coverage as a protection base and add additional term life coverage to fulfill your complete insurance need. "

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19 Comments

  1. Jason 07/10/2013 at 5:07 pm

    All insurance companies are looking for a certain amount of fall off across all lines. The ability to take in premiums but not pay a claim has a large impact on what premium rates are for consumers. If more fall-off continues, this not only creates profit for the insurance company, but can allow them to make their rates more competitive as well.

  2. LSM Insurance 07/11/2013 at 11:07 am

    Good point Jason. But certain plans are loss leaders and they really prefer that as many as possible of those plans off the books

  3. Ami Maishlish 07/12/2013 at 12:47 pm

    1. In the past, the lapse assumptions that insurers factored into the pricing of “permanent” life insurance were sustained in part through systematic denigration of these products by such “wannabee experts” as A.L.Williams, Charles J. Givens, and the like. More recently, however, those lapse projections are failing to materialize concurrent with a temporary low interest rate climate.
    2. The comment in the article that “RBC Insurance no longer offers Term 100 policies.” is inaccurate. They continue to offer Term 100 policies, though only through their in-house captive agents but not through the brokerage distribution channel. Likewise with numerous other products that they withdrew from distribution through the brokerage channel but continue to distribute through their captive agents. see: link to rbcinsurance.com

  4. LSM Insurance 07/12/2013 at 12:49 pm

    Ami, thanks for the point on RBC. The point remains these plans are unprofitable for Canadian Insurers and that’s why most are jumping to get out of the market.

  5. Samuel Bachoo 07/12/2013 at 12:51 pm

    Hi Chantal,
    This point cannot be overemphasized.Moreover,this fact must be brought to the attention of those that service the public,the advisers.I realize that disclosure has to be provided when replacement occurs but those new to the field “might” been tempted or because of improper review cause the client to laspe or to replace a policy that ought not to be done.Remembering always our duty to the public

  6. LSM Insurance 07/12/2013 at 12:53 pm

    Thanks Samuel. Good point. Filling in the replacement form itself does not ensure the replacement is the best interest of the client.

  7. Stephen G 07/12/2013 at 12:55 pm

    Replacing rarely benefits the Policy Owner.

    This is especially true in permanent level cost, level premium products both life and health.

  8. LSM Insurance 07/12/2013 at 12:57 pm

    That’s very true Stephen.

  9. Ami Maishlish 07/12/2013 at 3:22 pm

    I concur with Samuel. I would add that the current form of “disclosure” being employed on those so called “Replacement Disclosure Forms” is at its very best woefully inadequate and usually an insult to the term “disclosure”.

    Regretfully for consumers, the standards for licensing of life insurance intermediaries are so low that it would be a joke if it wasn’t so sad. That’s a subject on it’s own and beyond the scope of this thread, except that this sub-basement-standard manifests in bad advice caused in large part simply because the “advisor” is inadequately familiar with the subject matter. The most obvious example of this is when so called “advisors” ‘compare’ permanent insurance products merely on the basis of premium with no reference whatsoever to the yearly CSV and RPU values and contractual provisions. It gets even worse, when permanent insurance is compared to term insurance, and then only on the basis of initial premium – that’s like shopping for a home based solely and only on the basis of the minimum down-payment required.

    The “smoke and mirrors” pricing trends for “term” over the past couple of decades also created fertile ground of repetitive replacements and repetitive high commissions FYC for replacement artists. It comes as no surprise that life insurers jockey for relative competitive position on term offerings while reducing the number of their permanent offerings. In that regard, it is important for advisors and consumers to check the contract wordings relating to conversion options. Term products notably differ in that regard.

  10. Ryan Flynn 07/18/2013 at 1:18 pm

    As someone new to the industry and just coming across your blog this is pretty interesting news, I’d like to think there are alternative methods to some of these consumers canceling the policies that benefit the companies, the company will always be happy to increase profit.

  11. LSM Insurance 07/18/2013 at 3:02 pm

    Thanks Ryan. Depending on the type of plan and policy provisions. Some of these policies allow the insured to reduce the coverage or certain Term 100 plans have reduced paid up features.

  12. Tim 09/01/2013 at 2:13 am

    How can I use the cash value to pay my premiums and is this considered a policy surrender

  13. LSM Insurance 09/01/2013 at 4:07 pm

    Thanks Tim. You can make this request through your insurance advisor of the insurance company. You could ask for an inforce illustration based on you stopping paying further premiums. This would not be considered a surrender of the policy.

  14. Yogesh 09/18/2013 at 9:42 am

    I wouldn’t be surprised if Term 100 insurance is gone in 5 years

  15. LSM Insurance 09/18/2013 at 12:21 pm

    Hi Yogesh, Many brokers and insurance executives have shared your sentiments – hopefully guaranteed Permanent products remain in Canada.

  16. Gerry W 12/07/2013 at 2:53 pm

    We purchased a universal life policy in …. (Millennium with Canada Life). It was a joint last to die policy for my wife and me with an original face value of $…. We deposited a total of …k in increments of $50k in the first 3 years. This policy was sold to us on the basis that it would eventually generate sufficient income within the policy to eventually have a cash value of that would exceed the face value. We were explicitly told that the value could continue to grow within the policy and our beneficiaries would receive the total cash value after both of us have died. As it turned out the income generated was insufficient to sustain the policy and we started to realize that about 2 years ago. Up to that point, neither Canada Life nor our insurance agent made any effort to tell us that.

    With considerable effort, we had our agent go back to Canada Life to see what adjustment could be made to allow this policy to sustain itself. Our instructions were that we wanted to have the least amount of insurance that was permissible within the tax rules and that the insured portion would continue reduce and eventually become zero. We eventually selected a face value of $300k, and they provided a sample scenario showing us that the insured portion would be zero in about 10 years’ time. This was based on the current cash value of approximately $190k and the guaranteed interest rate of 2.5% plus an additional bonus rate of about 1.25%. We specifically asked if there were any tax consequences or other issues that would make this scenario substantially different but Canada Life would not respond to this. Our agent indicated that he didn’t think there would be any problems and we then proceeded with the change. This occurred in about October, 2012, almost 9 months after we had made our first enquiry.
    In August of this year, we received a notice from Canada Life that we had greatly exceed the permitted amount in our policy and they unilaterally withdrew $85,000 from the cash value and placed it into a zero interest “Side Account”. We immediately contacted our agent who was just as shocked as we were and also very upset. We have tried to get this straightened out but unfortunately, we are not permitted to contact Canada Life directly. They have been extremely slow and unresponsive. Through our agent, we asked them to explain what went wrong and how it can be corrected but their reply was something to the effect that they warned us that there might be tax consequences. The problem is that they knew that the proposed change would have significant consequences but made no attempt to explain that.

    We are now in a situation where it appears that we should dump the policy which I’m sure is exactly what Canada Life wants us to do. We feel that they have sold us something that was totally different than what we or our agent understood it was supposed to be. If it doesn’t meet the tax test than they should have warned us and provided another alternative. The important thing now is that the policy itself appears to be flawed from the start since it could not provide anything close to what we were led to believe when we first purchased it. It was promoted to us on a basis that we could get life insurance initially and later, it would grow as an investment sheltered within the policy and would be a tax free payout for the beneficiaries. I really have no way to determine whether this can be done now since even our accountant can’t decipher the tax rules that apply to this. Canada Life has continually tried to avoid answering this question.

    Do you have any thoughts or advice as to where I can go for assistance?

    Regards,

  17. LSM Insurance 12/07/2013 at 3:21 pm

    Hi Gerry,

    It would ask to speak with someone in the customer relations department at Canada Life. I would put your questions and concerns in writing and ask for a response in writing.

    If that doesn’t work you could file a complaint with your provinces insurance regulator. Depending where you are located some local newspapers have consumer advocates you can contact that may hasten the process. Best Regards,

  18. Gerry 12/07/2013 at 3:44 pm

    Thanks for the quick reply. I’m I the only one experiencing this type of treatment? We had another universal life policy that was for only $100k but had to cash it in since it was not sustainable. Again, the agent made no effort to contact us and we might have been able to salvage it if we had made adjustments earlier. I know of at least 2 others that did that as well.

  19. LSM Insurance 12/07/2013 at 5:49 pm

    You’re welcome Gerry. I agree with you 100% your broker should of reviewed your options. It’s not always easy to find a broker who is willing to go the extra mile. Having said that they are out there.

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