Low Interest Rates in Life Insurance

In order to encourage growth throughout the universal financial downturn, overnight lending rate of Bank of Canada has stayed at one per cent since September 2010 and is most likely to linger at this figure in the foreseeable time horizon.

The United States, China and emerging economies will grow slower than previously thought. Unfortunately, the European Union is falling into a relatively mild decline. Nobody said, however, that the developments cannot in fact be less favourable.

All this is bad news for Canada’s insurers. Their income depend on interest incurred in financial investments.

Proceeds from life insurance premiums are usually put into bonds—a relatively very safe investment vehicle—and remain there to generate interest. This interest can cover the costs of insurance claims, overhead and other miscellaneous obligations. Interest revenue left over will become insurance company profits.

Unprecedentedly low rates have put the screws to profitability for of Canadian insurers. Many insurers are trying to balance out these rates by inflating the price of their permanent life insurance policies. Manulife, Empire Life, Industrial Alliance, Canada Life, and BMO Insurance have all bumped up the fees on their level-cost universal life plans. Manulife has taken even more drastic measures – they decided to remove this type of coverage from their permanent life offering altogether. What’s more, additional players are likely to do the same in the foreseeable future.

The outlooks are ugly, seeing as central banks in the US and Canada are saying that interest rates are going to remain low for the foreseeable future.

One positive outcome of this situation is that a few smaller Canadian insurers try to attract new customers by freezing their permanent plan rates.

Please read more on the effect of the current interest rate trough on government employees and pensions.

Lorne Marr, author, is an insurance specialist and an authority on no medical life insurance. Lorne works with over a dozen Canadian life insurers.

What’s the News with Critical Illness Insurance?

Critical illness is nothing that we’d like to face at any point in our lives. Because the possibility of developing an illness can never be eradicated entirely, it is important that one takes precautions.

Only then, one is able to make key financial decisions. Taking on the suitable insurance plan now – while you are healthy – is one of the ways to make up for some of the unexpected costs that might be brought about by a critical illness. And that is the reason why there are half a million such policies active in Canada.

Life-and-death conditions are but a slice of the story. Even if one exceeds the originally estimated elimination period, the insurance company may take time to review the claim. One of the measures taken, for example, is to validate whether the insured knew of the illness at the time of application.

The latest news is that a few Critical Illness insurers in Canada bring forward an automatic increase benefit rider. This rider works to augment the policy’s critical illness insurance benefit at scheduled intervals. These automatic increases also mean that the monthly premiums in accordance with the benefit increase.

RBC Insurance, for one, offers its clients a biannual Automatic Increase Benefit Rider. This rider provides the insured with an opportunity to add to her or his benefit every second insurance policy anniversary until the rider terminates.

What is more, during the initial ten years of the policy, the insured person can boost their benefit amount without having to provide additional proof of his or her insurability. The amount is going to be equal to 20% of the originally agreed-upon policy benefit. This means the actual coverage can increase by 100% this way.

One caveat: RBC automatic increases may not be deferred or missed. In case the customer declines an increase, the add-on automatically terminates. Though, previous increases and corresponding increased premiums will still be in effect.

Speaking of inter-insurer variances Canada Life draws a distinction between cigar and pipe smokers in that they classify cigar and pipe smokers as if they were non-smokers for the purposes of critical illness and disability plans. This fact has a great potential to cut down the total price.

Check out for recommended reading about Critical Illness insurance: How Equitable Life Insurance reworked Critical Illness Plan for kids.

Various Insurance Policies Clarified

Today, we will take a peek at several types of insurance products offered to all of us that many are oblivious to. My short list should give you an overview of what is available out there.

American Insurance Company Building in Newark, New Jersey by wallyg

Mortgage Life Insurance

Kicking off with what is a terrible product: Mortgage life insurance. This idea obliges you to pay for coverage that weakens as you go. This means that the more cash you pay in, the more risk remains uncovered. This is such a bad deal that no one should ever agree to, since there are dramatically better means of insuring the household to offset the risk of default.

Bump Up Remuneration using Group Insurance

Employee benefits have the potential to engage HR managers for a long time. There are simply countless combinations of various perks and it is very hard to pick the ones your people will enjoy most. To top it off, the costs of employee benefits have been making it crucial that companies’ choices are as financially efficient as possible.

When you have acquainted yourself with the available combinations, look for perks your employees will prefer. Be open with them and give them several options to select from in a simple survey or take a look at their claims history and search for major examples of behaviour. Record and consult your approach and progress with an expert group specialist to prevent ordinary mistakes and boost the efficacy of the process.

No-medical Life Insurance

Guaranteed issue life insurance is a specific category of life insurance that is available to almost any applicant regardless of her or his medical history. This includes patients with lethal illnesses, patients with AIDS, and patients with unhealthy habits, such as smoking or drug abuse.

Insurance companies will accept almost anyone and they will ask only a few or no medical questions during the application process. Because this practice exposes insurers to much greater risk, the cost will show this and will be considerably more costly than with traditional life insurance plans. Also, the maximum coverage sum will typically be topping at several thousand dollars, whereas traditional agreements may easily reach anywhere up to millions of dollars. In addition no medical and simplified issue life insurance plans will contain exclusions in order to protect the underwriter from “abuse” by people who are extremely close to death. These are all sacrifices that you will have to make if you do not qualify for mainstream life insurance plans but want to be covered to a certain extent.

Life Insurance and a Cigar Smoker

Fancy cigars? Enjoying the occasional stogy might cost you much more than the $150 you paid for that pack of White Owls. That is, it could drown a fortune in extra life insurance premiums.

What does one do to reduce the impact of the habit of smoking cigars on the premiums? Well, most insurers allow you to have a cigar from time to time – usually once per month. Canada Life, for that matter, which tolerates one cigar as often as each week. Unity Life, on the other hand, offers a special cigar rate.

If you are , refrain from smoking cigars for at least a week so there is no lingering cotinine—a nicotine metabolite—in your body. The levels of cotinine in a person is used to measure one’s inhalation of tobacco smoke. Nicotine is “digested” by the body into cotinine, and that has a half-life of approximately twenty hours. This means that the substance’s levels will halve every twenty hours. Past the initial 20 hours, cotinine levels will sink to half, after the next 20 hours to quarter, etc. For these reasons, it is safe to expect any dose of cotinine to be metabolized untraceable after four days.

Insurance premiums for cigar smokers differ sharply from one company to another – and can quite possibly make up $40,000 over the duration of the policy.

As general advice, it is a very good idea to be truthful when applying for coverage. Until a policy has been in force for twenty-four months, the insurer has the right to contest it for misinterpretation or omission of a material detail. The ‘incontestability period’ varies depending on the life insurance company.

Smokers in general are best attended to by a knowledgeable independent broker who understands the underwriting guidelines of a range of insurance companies and keeps up-to-date on all amendments thereto. The same holds true for anyone with pre-existing medical conditions.

Written by L. Marr, Toronto insurance broker and financial advisor. Lorne has been working in life insurance in Canada for over a dozen years.

Standard Life and Their Insurance Policies

I would like to present to you several Canadian insurance companies in a few short articles, and I’d like to commence with Standard Life. Now, let me examine Standard Life’s Term and Universal Life plans.

The Universal Life policy:
You may apply for the Universal Life up to your 81st birthday. Perspecta - as this policyis being traded - has several nice things to offer, including multiple death benefit, flexible monthly premiums as well as cost of insurance options.

The Perspecta investment accounts include the following: managed accounts, indexed accounts (including Strategic Asset Allocation accounts), term deposits, and one daily interest account. What is more, Perspecta has a Shelter Optimizer and Account Optimizer, which maximize the return from premium investments by maintaining their tax-exempt status. The policy features client bonus payments in later policy years to further enhance value accumulation.

Applicants can add the following add-ons (and more) to the policy: 10 and 20-year term riders which are renewable and convertible, children’s term riders, critical illness riders for adults, as well as children, accidental death benefit, guaranteed insurability benefit and a benefit which relieves you from paying premiums in case of a disability.

On the downside, Standard Life insurance (which used to have some of the cheapest Universal Life plans out there) came with an increase in its pricing in 2005. Now, some age groups will be forced to switch to other insurance providers because of this increase. On the plus side, Standard Life is one of the handful companies in Canada to offer preferred rates on both their Term and Universal Life policy.

As an illustration, a 45-year-old non-smoking male will sign up to $211.95 monthly at least, as this is the minimum payment that keeps the policy alive.

Term Life:
Standard Life offers two term life policies in its portfolio - Term 10 and Term 20. You can sign up for the Term 10 policy at any time between age 18 and 70, Term 20 ends at 65. The plans are renewable to age 85 and they can be converted up to age 65. The Term policies also offer many different riders which are like those coming with the Universal Life policy.

The applicant can also decide to sign up for an individual or first-to-die benefit (e.g. with a spouse).
Those in good health and have a good family health history may be able to qualify for a preferred rate. As a bonus, if you are extremely healthy, you might qualify for a super preferred rate! On the downside, these term life plans are not available at face amounts under $100~000. This can prove crucial for senior applicants in case they are a constrained budget.

Basel and Canadian Banks

Embedded contingent capital. This may sound like a term from another planet, but it is a model which may become the reality for our banks. The Basel Committee listened to Canadian advice and now considers implementing this new regulatory feature in a hope to help preserve the stability of the world’s banks. Finance Minister Jim Flaherty said he was “pleased” Canada’s advice was being seriously considered.

The Basel Committee on Banking Supervision was created in 1974. This institution which unites the ten nations’ central bank governors. The committee gathers four times a year to discuss recommendations, guidelines and best practices that the members and other states should implement in their home legal system. The committee’s decisions do not directly influence the national markets, yet they are mostly obeyed since uniform law helps ensure that multinational banks are not required to use their own compliance management, which decreases the operating costs.

These new proposed rules redefine the accounting principles regarding banks’ debt, Financial Times reported. Under usual circumstances, debt (whether in the form of bonds or loans) is accounted for as a liability of the bank towards its creditors. Creditors have an advantage over shareholders: in case a company goes bankrupt, creditors are satisfied before any owners. In addition, the debtor-creditor relationship is traditionally more systematic and the creditor can expect to recoup back the face value of the debt at the end of the lending term. Regular debt is therefore safer than equity and thus cheaper too.

In the future, banks could make use of the option of transforming some of their debt to equity if another financial crisis strikes. Such a conversion will have to be ordered by the federal government and will allow banks to expand their capital levels instantly. More capital should allow the bank to withstand for a longer time – hopefully during the whole of the crisis. Therefore, the term “embedded contingent capital” is defined as capital embedded in the bank’s debt and contingent upon the financial situation of the bank or the entire economy. The government must initiate and approve the transformation.

In addition to improved banking sector stability, the newly proposed rules are meant to provoke greater scrutiny of investors and lenders over the performance of the bank and lending practices. As the effect of the greater risk they are facing, lenders will have an incentive to monitor their banks, the Basel Committee thinks.

But is it really that important of an argument? LSM Insurance argues that greater incentives are a positive notion. But will they be backed by appropriate legislation ensuring heightened transparency of the banking operations so that there are tools for investors to actually observe their banks effectively? Plus, even today, investors are interested in the well-being of their banks. The change may add additional pairs of eyes interested in the matter, but the added benefit is still debatable.

LSM Insurance believes that the major implication of this upcoming law for the banks themselves will be their ability to acquire financing in an extra way that is cheaper than equity but a bit more expensive than regular debt. That is if they can find a market to sell it to.

Debt in the form of loans and bonds normally obliges the debtors to pay back in regular agreed upon instalments – annuities – according to an agreed-upon payment schedule. The face value of the debt is always paid back to the lender when the debt matures. Equity, on the other hand, implies ownership, including voting and other rights. The disadvantage is that it is up to the company’s management to set the dividends, or whether there are any at all. What is more, shareowners cannot expect the face value of their investment to be returned at the end of the term and the only way they can recoup the money they invested is to re-sell their equity to another investor.

If Canadian banks find a way to take advantage this borrowing facility “of the third kind”, their cost of capital will increase. In return, they will have an interesting safety measure in place to resort to in case worse comes to worst. Of course, there must be a market and means of valuation for such an instrument, which is still a large question mark in a market as small as the Canadian one Nevertheless, the banks seem to expect that the hassle is going to be worth it eventually. The reassuring factor is that this feature can only be applied upon federal government approval and is not the decision of the banks themselves.

According to Reuters, the banks in Canada say they are ready to embrace the new rules. From their current position, they want to continue in their successful post-crisis growth. Banks and analysts are forecasting acquisitions and mergers in Canada and abroad. Our banks will want to expand their presence especially in the European and US markets.

How Longer Sleep Might Make Your Little Ones Lighter

Life insurance brokers repeatedly emphasize the importance of lifestyle in influencing your life insurance plan bill. Recently, academics discovered in a survey that if you improve your chidren’s day’s regime during their youngest age, it could possibly have a major impact on their well-being in the later stages of their life.

A survey conducted in the U.S. tried to find out if there is a traceable correlation between the length of a kid’s sleep and his or her body weight in a representative sample of U.S. 0 to 13 year-old children, Reuters reports. The survey was conducted in two chunks. In 1997, the researchers gathered the initial details about the people in the sample, followed up in 2002 by collecting information about the elapsed period.

The study showed that children who were able to get fewer than 10 hours of sleep before age 5 are expected to have elevated chances of becoming overweight in their later life. For those interested in more details: toddlers’ parents should allow their precious ones to sleep 12-14 hours every day. Older children before age 5 would do best to rest at least eleven-thirteen hours a day and children older than five but younger than 10 are advised to take ten- to eleven-hour sleep too. The trend continues in a similar way, encouraging teenagers to go with 8.5-9.25 hours of rest at night. The researchers take care to point out that interrupted sleep doesn’t add to one’s sleep time.

When examining children over five, shorter sleep periods were not proven to be directly associated with excess weight, but is nevertheless deemed to have the force to change a kid’s body weight in a negative direction temporarily. The causes of that haven’t been discovered yet. There are theories, some of them suggesting that sleep has an influence over one’s . This is true for adults as much as kids. In addition, Dr. Janice F. Bell explains that exhausted children probably do not feel like exercising as much needed. Perhaps a more trivial explanation could be that the briefer one sleeps, the more chances he or she has to consume.

It has been noted above that the advantage of this study lies in the fact that the tested subjects were watched for a longer period, contrary to only one moment. That way, the researchers were enabled to track weight variations in the very same boys and girls, not simply averaging across a mixed group. The majority of probes had to rely on statistical incidence of overweight kids among examined groups and every single subject’s memories regarding their habits.

We ought to be positively encouraged that sleeping practices can be easily tailored to one’s needs, mainly in younger children who can possibly be impacted most. Keeping oneself in good health will definitely improve one’s enjoyment in life, but may decrease the price of his or her health care and life insurance quote.

The European Capital Test

In the middle of 2010, Europe’s bankers underwent a stress test to determine the assortment of their capital holdings and to what degree they relied on resources connected to problematic states. In spite of the results of the stress test being positive in the beginning, it was found after a while that there were important omissions of details in the test templates. The E.U. banks’ capital structure makes them indeed subject to more risk than is considered healthy.

A few weeks ago, in July 2010, a stress test was imposed on all European banks to determine whether they were ready to survive a future financial downturn. This assessment was chiefly aimed at assessing the EU banks’ reserve levels and its type – whether a satisfactory level of reserves exists and whether it is of a satisfactory quality for the examined banks to rely on. Several countries outside the E.U. introduced a test on their banks’ reserve ratios as well – LSM Insurance informed its followers and clients about that earlier this year as well. The E.U. test discovered that a handful of banks (especially in Greece) were in an unfavourable position, but the the findings in general helped to solidify the investor confidence in the European banking system in general. For those reasons, the Euro and other EU currencies outside the monetary union were benefiting from an unshaken position in the international market.

That is to say for a tad more than four weeks. Early in September 2010, The Wall Street Journal released a detailed analysis of the test results and compared it to a review of the official financial reports of the examined banks. WSJ found that the test subjects often did not manage to detail all the necessary descriptions on their funding, seeing as the numbers could not be entirely matched their statutory reports. This way, the transparency of the input details was unfortunately affected. The banks did not lie. Rather, the banks just did not care to categorize their holdings correctly as the CEBS guidance was not written clearly enough either to start with.

Traditionally, government debentures are believed to be carrying no risk. Considering the financial distress in in Greece, however, they have gained on importance. Greece’s near-bankrupt status puts riskier government debentures and as such, the Greek government bonds ought to be recorded differently. Many banks just would not make this principle clear when reporting. Some banks wouldn’t report parts of their capital holdings, claiming that it was because of their volatility and the fact that they were actively traded in the normal course of their business. This way, they effectively improved their results in an uncontrollable fashion. Since every tested participant “understood” the requirements of the test with slight differences, each tested subject disclosed its reserve holdings differently and that caused that the results are drawing from different assumptions. Therefore, they are virtually incomparable.

In short, the paramount issue with the testing was the limited amount of extra information that the banks included for the regulators. Obviously, the CEBS test requirements were too relaxed to really oblige the banks to reveal any useful pieces of data. This is unfortunate for the Euro, which experienced a severe shock and has been trying to climb back up insecurely from that time forth. It is bewildering to see that even now, the CEBS is still confident with the original rules.

We certainly hope the CEBS and other banking regulators all over the globe are going to learn out of this slip and will take care that any other tests and regulations are well-thought through. Any more issues would harm the trustworthiness of the affected economy.

Learn More about Lorne and the Company

Hi everyone,

Just a quick question - have you already had a look at LSM Insurance on Facebook? We will be happy to see that you “Like” us!

Also, if you want to find your favourite broker, check out the exact location of LSM Insurance on wikimapia.org .

Thanks and stay tuned for more articles!

- Lorne

Were You and Your Loved Ones Caught Up in The Earthquake In Canada Last Week?

Did you feel the earthquake that struck south eastern Ontario and some of Quebec on June 23, 2010 at 1:41 pm EST?

Luckily, the magnitude was only 5.0 according to the US Geological Survey, and no extreme damage was reported. Just 61 km north of Ottawa is where the epicentre of the earthquake happened.

As reports came in, many people spoke of a gradual rumbling which escalated in intensity, a bit like building work going off below or around you. The vibrations could be felt as high up as the 9th floor of office and apartment blocks according to eye witnesses. The rumbling sensation may have been mild, but Lorne certainly felt the earthquake.

Even though natural disasters happen very rarely in Canada, they do occur and it brings home to us all how vulnerable we all are. It definitely makes me wonder what I can do to protect myself and my family should another disaster hit us.

Along with normal emergency preparedness, part of your preparation should include life insurance.

What many people do not understand is that along with disasters such as floods or hurricanes, earthquakes are one of the most expensive natural disasters. Earthquakes account for 30% of all damage by natural disasters from 1950-2001. While the human cost of earthquakes is only 9% compared to the 42% occurring due to famine, famine only accounts for 4% of the damage which is tiny in comparison to earthquakes.

People losing their lives fell in the 90's from 86,328 per year in the 80's to 75,252; but those touched by natural disaster climbed from147 million in the 80s to 211 million people a year in the 90's.

With a big increase in monetary impact from natural disasters since the 1960's we also see an increase of occurrences, which isn't good news.

With more disasters occurring then it stands to reason that more and more people are going to have their lives affected by them, as a result it is only natural to look at ways of minimizing the impact on your family.

The five influential Canadian insurance organizations we surveyed do provide death benefits for you and your family if such disasters take place, but you need to check the policy carefully if you choose not to use them and go elsewhere. If you are urged not to travel somewhere, such as a war zone and you do, be aware that this is one exception that insurance companies put in place on their schemes.

Delivered by Lorne Marr, the founder of LSM Insurance and mortgage life insurance expert

Not every shake is the same!

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