The Future of Whole Life Insurance

Life insurance companies in Canada have been under increasing pressure thanks to historically low interest rates. However, the Toronto Star reports that these low interest rates may soon disappear.

Low interest rates are generally bad news for banks and insurance companies, as they begin to invest your premiums and deposits in long-term bonds and other guaranteed investment vehicles to help offset future obligations.

When interest rates are lower, they squeeze the profitability of an insurance company’s operations. This is especially true for permanent life insurance policies. Whole life insurance offers lifetime protection, fixed premiums, and in the case of participating whole life insurance, a non-guaranteed dividend. This dividend usually takes the form of increased cash values or death benefits. Participating whole life policies have still been paying out very attractive yields (some in excess of 6%) given the state of long-term interest rates in Canada.

However, the trend is likely to sink, as insurance companies are having to cash in maturing higher-interest-rate bonds for newer, lower-interest-rate bonds. New companies wanting to enter this market are also finding it very difficult, as they’re having to price their products based on today’s low interest rates.

So what can we expect in the future from life insurance companies?

LSM president Chantal Marr says consumers can continue to expect an increase in the number of adjustable whole life plans. Adjustable whole life policies shift the risk from the insurance company to the consumer because the premiums on these policies are adjusted in relation to interest rates.

If interest rates decrease, the premiums on these plans increase. Obviously, if the interest rate increases, the premiums on these plans will likely decrease.

Empire Life recently introduced an Adjustable Term 100 policy, and Industrial Alliance has introduced a Universal Life policy with an adjustable cost of insurance option. Now may be a good time to look at adjustable whole life plans, since it’s unlikely that interest rates will fall much farther before capping the amount of risk the consumer can take on. 

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  • Roney
    December 2, 2014 at 10:36 am

    Low interest rates are generally bad news for banks and insurance companies, as they begin to invest your premiums and deposits in long-term bonds and other guaranteed investment vehicles to help offset future obligations

    • LSM Insurance
      December 2, 2014 at 10:41 am

      Agreed. Thanks for sharing Roney.

  • Jtar R
    March 26, 2014 at 2:36 am

    Whole life insurance policy provided forced savings but I question if this is really a good thing. I would rather save my own money. But Term and invest the difference caught on for a reson.

    Just my 2 cents

    • LSM Insurance
      March 26, 2014 at 8:18 am

      Thanks Jtar. Whole Life Insurance does have a cash value. But this is really the surplus of excess premiums paid to keep the future premiums level.

      Term policies give lower initial premiums but the premiums can become unaffordable as the insured ages.

  • Russell Cain
    October 4, 2013 at 6:43 pm

    Really interesting post, and what I find fascinating is the amount of options you have available currently we only have term life insurance policies available in Australia? The last endowment / whole of life policy was taken off the market some 10+ years ago? Any idea which is the most popular contract in Canada?

    • LSM Insurance
      October 4, 2013 at 7:15 pm

      Thanks Russell. I would say the most sold life insurance policy is Term 20 Life Insurance. But Participating Whole Life sales have been surging with the rise in Term 100 and Level Cost Universal Life premiums.

  • Kevin H @ Growing Family Benefits
    October 4, 2013 at 5:58 pm

    Many people buy life insurance after buying a house. Perhaps those taking adjustable rate mortgages will find an adjustable whole life policy a good fit.

    The payments for the two move in opposite directions as rates change.

    • LSM Insurance
      October 4, 2013 at 6:32 pm

      That’s a very interesting point Kevin – regarding the products being influenced in opposite directions.

  • thomas
    August 9, 2013 at 12:45 pm
    • LSM Insurance
      August 9, 2013 at 12:50 pm

      Thanks for sharing Thomas – lots more changes could be on the horizon. We are likely to see more companies introduce Adjustable Whole Life Plans