At Protect Your Wealth, we continually monitor the Canadian life insurance, critical illness, and disability insurance market to provide the best possible insurance solutions for our clients. Some of the companies we recommend are household names, such as Canada Life, Manulife, and Sun Life. Others, like Ivari, Empire Life, and SSQ Insurance, are not as well-known, although they have excellent policy options. Many times, when we present smaller life insurance companies along with the big-name ones, clients are concerned. “What happens if my life insurance company goes insolvent or bankrupt?” they ask. In this case, they are equating ‘smaller’ with ‘potentially unstable.’ It’s not true.
Small Life Insurance Companies Are Still Strong
Although not all insurance companies are household names, they still have a solid history in the Canadian marketplace and/or strong and secure backing. For example, did you know that:
Small Life Insurance Companies Still Meet Regulations
All Canadian life insurance companies, regardless of size, must maintain a minimum continuing capital and surplus ratio. The higher the company’s ratio, the better position it is in to pay claims.
Regulations require a ratio of at least 120%, but many companies maintain much higher ones. For example, Foresters Financial maintains a ratio close to 400%. A wealth planning advisor can provide you with the information you need to select a financially-solid insurer.
What Do Financial Ratings Mean For Life Insurance Companies?
All insurance companies receive financial strength ratings from independent agencies. These ratings indicate an insurance company’s ability to pay policyholders’ claims. Looking at these ratings can give you an indicator of how well an insurance company is doing financially, and if you should take a policy with them.
All Canadian Life Insurance Policies Are Protected
Let’s assume that the worst happens. You take out life or critical illness insurance with a company that later declares bankruptcy. What happens then?
In Canada, all life, critical illness, and disability insurance policies are protected by a non-profit organization called Assuris. Just like all banks are required to be members of the Canadian Deposit Insurance Corporation (CDIC), all life insurance companies must be members of Assuris.
Assuris is like insurance protection for your insurance companies: Assuris guarantees that if your life insurance provider fails, your policies will be transferred to a solvent insurer and you will receive, at the very least, 85% of the promised insurance benefits.
What Happened With Past Life Insurance Company Insolvencies?
There have been only four instances where Assuris became involved with life insurer insolvency:
In 2008, American International Group, one of the world’s largest life insurance companies, required a government bailout to rescue it from collapse. Before the crisis, it lost $99.2 billion of its $1 trillion worth of assets, but the Federal Reserve Bank of New York stepped in with an $85 billion loan to keep it from going under.
The reality is that no insurance company, regardless of size, is immune to external risks which could threaten their viability. However, given the relative stability of the Canadian life insurance market, much stronger regulations post-2008, and added consumer protection with Assuris, policyholders can rest assured they have access to financially secure solutions. In the event that your life insurance company fails, you will be informed on how your benefits are protected by Assuris, with no need for extra application or claim filing with Assuris.
If you are concerned about the financial health of a prospective insurer, you can work with an experienced wealth planner who can investigate and advise you of the insurer’s standing with leading credit agencies. Although there are safeguards in place, it’s always better to deal with a life insurance company that has little chance of going bankrupt in the first place.
Canadian Life Insurance Company Mergers and Changes of Ownership
If you can’t find your life insurance company’s information, it may be because they have merged or their ownership has changed. Below is a chart of insurance company mergers and changes of ownership.
The biggest life insurance companies in Canada have acquired and merged with many smaller companies over the years. For example, Manulife acquired Maritime Life, who bought other companies such as U.N.A Life and Aetna Life. Meanwhile other companies, such as ivari, rebranded and changed their names after acquisitions.