The insurance industry has changed drastically in the past 36 months. RBC has suspended its permanent insurance business, and Manulife has closed deposits on some of its guaranteed income products.
Why? Low interest rates; introduction of the International Financial Reporting Standards; increased compliance spurred by FINTRAC reporting requirements; a limited number of reinsurance choices; and tougher capital rules. This is forcing companies to re-price or discontinue certain plans.
For your clients, this means now is the time to buy. For you, this means there's a clear sales opportunity. Here are some arguments to present to prospects:
Life insurance and critical illness rates will continue to increase. In the past, increases have been as high as 30%. CI term policies come with a conversion privilege to permanent insurance—for now. Tell clients to make the switch before the privilege disappears or rates go up.
Wherever possible, lock in rates. And talk to clients about converting part or all of their term insurance to permanent contracts. Permanent insurance rates will keep rising, and products that provide long-term guarantees will be affected first.
If clients have limited budgets, suggest they buy permanent CI, since that product is most at risk of being modified or discontinued. Permanent life insurance premiums will go up, too, but people can buy term insurance now and lock in later. Still, clients who have enough cash flow should lock in both.
The rules are set to change on UL. The Income Tax Act is likely to be amended, and the changes are expected to lower the amount policyholders can put into the investment portion of the policy for tax-sheltering purposes.
Existing contracts will be grandfathered, as long as clients can afford the current rates. So convince them to buy before new prices and policy restrictions are implemented.
In today's reality, insurance is on sale. Based on anticipatable future returns, it's underpriced and those who purchase permanent policies today will pay less for the rest of their lives.
Originally published in Advisor's Edge
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