Why Low Interest Rates are Bad News for Canadian Life Insurance Companies

The Bank of Canada’s overnight lending rate has remained at 1% since September 2010 in order to stimulate growth during the global economic downturn and rising risks, according to iPolitics.

This is bad news for Canada’s insurance industry. Insurance companies rely on interest from their investments to bolster profits.

Revenues from life insurance premiums are invested in bonds, and the interest generated from these bonds goes to cover the costs of claims, liabilities, and other administrative expenses. The funds left over translate into insurance company profits.

Historically low interest rates have put the screws to profitability for insurance companies. Many of them are combating these rates by raising the premiums on their permanent life insurance policies. Manulife, Empire Life, Canada Life, Industrial Alliance and BMO Insurance have all raised the rates on their level cost universal life plans. Manulife Insurance has gone so far as to remove their non-participating whole life product from its permanent insurance line-up. What’s more, other companies are likely to follow suit in the coming months.

This situation is not likely to improve, as central banks in the United States and Canada have said that interest rates will remain low for the foreseeable future. Many insurance companies in Canada have raised their interest rates on permanent life insurance policies, ranging anywhere from 10 to 30 per cent.

The bright side is that a select number of smaller Canadian insurers have carved out a niche by leaving their permanent policy prices unchanged.

For more details on which insurance companies offer the best value on permanent life insurance, contact us at 1.866.899.4849 or visit our Whole Life Insurance Quote Page.

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  • Patrick
    July 15, 2013 at 7:44 am

    Interest rates high or low these companies are still bring in buckets of cash. How do you think they pay for those HUGE office towers

    • LSM Insurance
      July 15, 2013 at 11:31 am

      Hi Patrick, Agreed most insurance companies are very profitable but certain product lines are squeezing profits.

  • lewis
    June 24, 2013 at 5:18 am

    Eventually all this artificial money in the economy will cause interest rates to spike.

    The only problem is even the Adjustable WL policies are priced at outrageous rates when compared with two years ago when the rates were still low.

  • Justice
    June 9, 2013 at 1:54 am

    I would wouldn’t worry about any insurance company. They are making fistfulls of cash!!

  • Nate
    May 8, 2013 at 9:42 pm

    Good news for consumers bad news for insurance companies. Seems like a good mix to me.

    • LSM Insurance
      May 9, 2013 at 8:05 am

      The only problem is the insurance companies are passing on squeezed profits in the form of higher premiums and the removal of certain Permanent products.

  • Steven
    May 7, 2013 at 11:25 am

    How do lower interest rates effect my universal life insurance policy? Should I anticipate having to kick in more $$ or accept a lower death benefit due to lower interest rates? Also, as a potential client can you give me examples of how you are monitoring the performance of your client’s policies for pending problems? Regards, Steven

    • LSM Insurance
      May 7, 2013 at 2:37 pm

      Hi Steven,

      Thanks for the note. Existing Guaranteed Permanent policies are not impacted by changes in interest rates however new policies are.

      Adjustable Permanent plans can have premiums adjusted at the discretion of the insurance carrier. Usually this is done on a class wide basis and there is generally a maximum % the policy can be increased by.

  • LSM Insurance
    April 29, 2013 at 10:04 am

    Hi Frank,

    Thanks for the note. Industrial Alliance offers a 40 year Term. We will email you a quote now.

  • Frank
    April 29, 2013 at 6:49 am

    Hello, What companies offer a 40 year term. I’m 42 and looking for $500,000. Much appreciated