What Happens If My Life Insurance Company Became Insolvent?

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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.

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:

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 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.

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 $200,000 or 85% of the expected benefit
  • Life insurance cash values up to $60,000 or 85% of the actual cash value, whichever is higher
  • Life insurance cash values up to $60,000 or 85% of the actual cash value, whichever is higher

  • Disability insurance benefits up to $2,000 per month or 85% of the expected monthly income benefit, whichever is higher
  • Healthcare expense benefits up to $60,000 or 85% of the expected benefits, whichever is higher
  • Long-term care benefits up to $2,000 per month or 85% of the expected monthly income benefit, whichever is higher
  • Annuities up to $60,000 or 85% of the expected benefits, whichever is higher

In addition

  • Segregated funds will have their contract guarantees transferred up to $60,000 or 85% 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 will be transferred to the solvent company. These products include tax free savings accounts, accumulation annuities, universal life overflow accounts, premium deposit accounts and dividend deposit accounts. Assuris guarantees that policyholders will retain 100% of the accumulated value of these products, up to $100,000.

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.

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.

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.

Best Life Insurance Quotes Canada

Stay at ease knowing that you’re protected

If you want to secure your future with a comprehensive life insurance package, working with a wealth planning specialist will help you source the right solution for your particular situation.

At Protect Your Wealth, we have been providing life insurance and wealth management solutions since 2007. We believe that every client’s needs are unique and we will carefully evaluate your needs and goals before recommending a solution. We proudly service clients in Ancaster, Burlington, Dundas, Hamilton, Oakville, Waterdown and the surrounding areas, so please call 1-877-654-6119.

Frequently Asked Questions (FAQs)

A life insurance company becoming insolvent means that the company has been placed into liquidation, rehabilitation or conservatorship. This means that the company is no longer operating.

In the event that a life insurance company becomes insolvent, a non-profit organization called Assuris will take over the responsibility of covering those under the protection of policies from the insolvent company.

Life insurance companies can protect themselves against losses by using deductibles. A deductible is an amount of money that is paid by the client in order to reduce cover risk pools and mitigate the problems associated with adverse selection.

Life insurance companies fail as a result of shocks to their capital or reinsurance arrangements, being overwhelmed by claims from a catastrophic event and/or alleged fraud.