The Life Insurance Your Insurance Company Wants You to Cancel

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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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Gerry
Gerry

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.

LSM Insurance
LSM Insurance

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.

Gerry W
Gerry W

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… Read more »

LSM Insurance
LSM Insurance

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,

Yogesh
Yogesh

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

LSM Insurance
LSM Insurance

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

Tim
Tim

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

LSM Insurance
LSM Insurance

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.

Ryan Flynn
Ryan Flynn

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.

LSM Insurance
LSM Insurance

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.

Ami Maishlish
Ami Maishlish

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… Read more »

LSM Insurance
LSM Insurance

That’s very true Stephen.

LSM Insurance
LSM Insurance

Replacing rarely benefits the Policy Owner.

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

LSM Insurance
LSM Insurance

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

LSM Insurance
LSM Insurance

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

LSM Insurance
LSM Insurance

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.

LSM Insurance
LSM Insurance

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… Read more »

Jason
Jason

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.

LSM Insurance
LSM Insurance

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