How do I stay protected?

8 Minute read

Originally published: May 28, 2021

Updated: June 1, 2023

What Happens If My Life Insurance Company Became Insolvent in Canada

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.

What is Insolvency?

When a person or business is unable to pay creditors as their debts are due, this situation is known as insolvency. It is likely that an insolvent company will engage in informal agreements with creditors, such as setting up alternative payment arrangements, before engaging in insolvency proceedings. A decrease in cash inflow, an increase in expenses, or poor cash management can all lead to insolvency.

Understanding Insolvency?

A business that is unable to pay their debts is said to be insolvent. It may result in insolvency proceedings, wherein the insolvent business will face legal action and potential asset liquidation to settle debts. Owners of businesses have the option to speak with creditors directly and divide debt into more manageable payments. Creditors are typically open to this strategy because they want payment, even if it comes with a delay.

Small Life Insurance Companies Are Still Strong

Smaller life insurance companies are a great choice if you are thinking about getting a life insurance policy. Basically all of the smaller life insurance companies in Canada are still safe and secured options that are regulated and are protected by a non-profit organization called Assuris. Assuris is an organization which protects life insurance companies similarly to the Canadian Deposit Insurance Corporation (CDIC). 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:

What Happens If My Life Insurance Company Becomes Bankrupt?

SSQ Insurance serves over three million Canadians and has over 11 billion dollars in assets?
Empire Life has been serving the life and critical illness insurance needs of Canadians for over 100 years?
Ivari is actually 100% owned by Canada Pension Plan through a subsidiary company?

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 functions as a safety net for your insurance companies. In the event of your life insurance provider’s failure, Assuris guarantees that your policies will be transferred to a solvent insurer. You will receive up to 90% of the promised benefits — a raise from the previous 85% — or the following amounts, whichever is higher:

Death benefit: $1 million (up from $200,000)
Health expense: $250,000 (up from $60,000)
Monthly income (e.g., from annuities): $5,000 per month (up from $2,000 per month)
Cash value and segregated fund guarantees: $100,000 (up from $60,000)

Moreover, accumulated value benefits, such as those found in accumulation annuities, universal life overflow accounts, and whole life dividend deposit accounts, are now fully protected up to 90% or $100,000, whichever is higher, up from a straight maximum of $100,000.

Assuris guarantees that you will retain at least 85% of your expected benefits and cash values in the event of your insurance company becoming insolvent.

Life insurance death benefits up to $1 million or 90% of the promised benefit, whichever is higher
Life insurance cash values up to $100,000 or 90% of the actual cash value, whichever is higher
Disability insurance benefits up to $5,000 per month or 90% of the promised monthly income benefit, whichever is higher.
Healthcare expense benefits up to $250,000 or 90% of the promised benefits, whichever is higher
Long-term care benefits up to $5,000 per month or 90% of the promised monthly income benefit, whichever is higher
Annuities up to $5,000 per month or 90% of the promised benefits, whichever is higher

Segregated funds will have their contract guarantees transferred up to $100,000 or 90% of the guaranteed amounts, whichever is higher (actual market value is not affected).
Group life, disability and health expense insurance will have the same guarantees as individually owned policies.
Deposit type products, such as tax free savings accounts, accumulation annuities, universal life overflow accounts, premium deposit accounts, and dividend deposit accounts, will be transferred to the solvent company. Assuris guarantees that policyholders will retain 90% of the accumulated value of these products or up to $100,000, whichever is higher.

What Happened With Past Life Insurance Company Insolvencies?

There have been only four instances where Assuris became involved with life insurer insolvency:

LesCoopérants (1992): At the time Les Coopérants was declared insolvent it had 222,000 individual policyholders and 600,000 group insurance certificate holders. All policyholders were fully covered and protected by Assuris.
Sovereign Life (1993): On December 21, 1992, the Superintendent of Financial Institutions took control of The Sovereign Life Insurance Company and the court granted a winding-up order. At the time, Sovereign Life had 249,000 policyholders: 96% of policyholders were protected with 100% of original benefits, with the remaining 4% receiving at least 90% of their benefits. Assuris transferred all policies to a solvent life insurance company.
Confederation Life (1994): Confederation Life, founded in 1871, had operations in Canada, the United States, and the United Kingdom. Confederation Life was forced into liquidation in 1994, due to not having enough assets to cover policy holders and creditors. At the time, the company had 260,000 individual policyholders in Canada and another 1.5 million people were members of a group insurance plan. The liquidation process continued until May 2012, and all Canadian policyholders retained 100% of initial benefits with no loss incurred.
Union of Canada Life (2012): Founded in 1864, Union of Canada Life serviced approximately 22,000 policies across Canada, mostly in Quebec. 99% of policy owners were fully covered, with the remaining 1% retaining a minimum 95% of their benefits. Union of Canada Life was bought by UL Mutual (now UV Insurance), where policies were transferred to.

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.

Recent Life Insurance Company Mergers and Ownership Changes

The Quebec City area La Capitale and SSQ, both based in Quebec City and Sainte Foy, merged to form Beneva in 2020.
NN Life acquired Mony Life, which later changed its name to Transamerica Life. Ivari acquired Transamerica Life in 2015.
SSQ Insurance became Beneva in 2022.
Unity Life is now known as Western Life. Western Life later purchased Unity Life. Beginning in January 2020, Western Life and Wawanesa Life merged to form Wawanesa Life.

Notable 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.

Life insurance mergers and ownership changes in Canada

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.

Talk to an advisor today.

GET A QUOTE

Do you have any other Life Insurance Questions?

If you’re not sure of what’s the best insurance plan or company for you, working with a life insurance specialist can help you find the best solution to fit your particular situation. At Protect Your Wealth, we’ve been providing expert advice for all types of life insurance, including no medical, critical illness, and permanent insurance since 2007. As your trusted Life Insurance broker and financial planner, we work with you to create a plan for your family or business that covers and meets your needs.

Contact Protect Your Wealth or call us at 1-877-654-6119 to talk to an advisor today. We’re proudly based out of Hamilton, and service clients anywhere in Ontario, British Columbia, and Alberta, including areas such as London, Prince George, and Lethbridge.