What Happens if My Life Insurance Company Became Insolvent?
As a licensed insurance broker I always shop the Canadian life, critical illness and disability insurance market to find best possible insurance solution for my clients. In the course of this research I often present at minimum 3-5 different insurance carrier solutions. Inevitably out of these companies, some names will be easily recognized such as Canada Life, Manulife and Sun Life, 3 of the Canada’s largest providers, while others such as Ivari, Empire Life, SSQ Insurance and others may not be household names.
The main concern I receive from clients regarding companies they have not heard of, “What happens if the company goes insolvent or bankrupt?”
First off, although certain companies are not necessarily household names many have a long standing history in the Canadian marketplace and/or have a tremendously strong backing. For example, did you know SSQ Insurance serves over 3 million Canadian customers and has over 11 billion in assets? Or that Empire Life has been in operation for nearly 100 years in the Canadian life and critical illness marketplace, including investment solutions such as segregated funds? Or that Ivari, is actually owned 100% through a subsidiary company owned by the Canada Pension Plan?
2ndly, Canadian insurance regulations are such that all insurance companies are required to maintain a minimum continuing capital and surplus ratio. The higher the ratio the stronger the indication of an insurance company’s long term ability to pay claims. The ratio must be at least 120%, however many companies maintain much higher ratios. Foresters Financial for example maintains a ratio close to 400% far greater than the minimum requirement.
3rd and perhaps most importantly, all life insurance policies in Canada, including life, critical illness and disability insurance policies are protected by a the not for profit organization Assuris. Similar to Canadian Deposit Insurance Corporation (CDIC) on the banking side, all life insurance companies in Canada authourized to sell insurance products are required to be become a member of Assuris.
Assuris guarantees that if a life insurance company were to fail, that policy holders will receive at minimum 85% of the promised insurance benefits. This includes life, critical illness, disability, health expense, long term care, annuities, segregated funds and group insurance.
- Life Insurance death benefits up to $200,000 or 85% of the promised Death Benefit
- Life Insurance cash values up to $60,000 or 85% of the Cash Value, whichever is higher
- Critical Illness benefits up to $60,000 or 85% of the promised benefits, whichever is higher
- Disability Insurance benefits up to $2,000 per month or 85% of the promised Monthly Income benefit, whichever is higher
- Health expense benefits up to $60,000 or 85% of the promised benefits, whichever is higher
- Long Term Care benefits up to $2,000 per month or 85% of the promised Monthly Income benefit, whichever is higher
- Annuities up to $60,000 or 85% of the promised benefits, whichever is higher
- Segregated funds actual market value is not impacted, however the guarantees of the contract would be transferred up to $60,000 or 85% of the promised guaranteed amounts, whichever is higher
- Group life, disability and health expense insurance will have same guarantees as individually owned policies
Note, deposit type products will also be transferred to the solvent company. These products include tax free savings account, accumulation annuities, universal life overflow accounts, premium deposit accounts and dividend deposit accounts. Assuris guarantees that policyholders will retain 100% of the Accumulated Value up to $100,000 for these products, similar to CDIC guarantees.
There have been 4 instances in history where Assuris has been involved with insolvencies; Les Coopérants (1992), Sovereign Life (1993), Confederation Life (1994) and Union of Canada Life (2012). In the case of Sovereign Life, 96% were protected with 100% of original benefits, with the remaining 4% receiving at minimum 90% of their benefits. In the most recent case with Union of Canada Life, 99% of policy owners were fully covered, with the remaining 1% retaining minimum 95% of their benefits. With Confederation Life, all policy holders retained 100% of initial benefits with no loss incurred. The first ever insolvency in Canada was with Les Coopérants, which helped set precedent that during liquidation of life insurance company, policyholders should receive priority. All policy holders retained at the minimum the guarantees listed above.
Not too long ago, in 2008 one of the world’s largest insurance companies, American International Group (AIG), nearly collapsed before receiving a government backed bailout. The reality is no company is immune to external risks which could threaten their viability. However, given the relative stability of the Canadian life insurance market (with only 4 recorded failures in history), much stronger regulations post 2008 and added consumer protection with Assuris, policy holders can rest assured they in financially secure solutions.
Working with a life insurance specialist can help you find the best solution to fit your particular situation.
We would be happy to provide further analysis for your family’s specific circumstances. Contact Protect Your Wealth today to learn more!
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