If you think that the world of life insurance changes slowly… you’re right. Products are designed to meet tax rules set by the Canadian government. This is easy with term life insurance because the products are so simple: pay your premiums, and the death benefit gets paid tax-free if you die.
Whole life and universal life are different. Those plans allow tax-sheltered growth, much like an RRSP or TFSA. This is where the tax rules matter:
- How much can you invest?
- How much investment growth is allowed?
The tax rules for life insurance changed on Jan. 1. The previous rules took effect on Dec. 2, 1982—that could be before you were born. The 2017 rules forced insurance companies to make changes to their products, presentation tools and administration systems.
This year, there are new trends in products:
You can buy basic life insurance products online but, for personalized help, you usually had to meet an insurance advisor in person. That’s often inconvenient and time-consuming. You also risk being upsold.
Now you can get some products through an advisor you haven’t met. This reduces the costs for advisors. Electronic applications have fewer mistakes since there is no handwriting and because error checking is built-in.
Buying life insurance is slow and unpleasant—if you want to save money. The process is also expensive for insurance companies. Some are now reducing the requirements for younger ages and lower coverage amounts. This makes the process faster and almost pleasant.
If you don’t like giving blood and urine samples, there are products for you. Ditto if you’ve been declined conventional life insurance. The downside is that you pay higher premiums and may get reduced death benefits in the early years. Still, getting something is better than being unprotected.
When products have been around for years or decades, they tend to get more complex as more features are added. The advisors may have difficulty explaining them and you may get confused. Newer products are removing features that aren’t widely used.
Companies tend to add more products over time. Advisors have their preferences. While sales volumes are reasonable, insurance companies tend to keep the products in their lineups.
The new tax rules required some changes and have led to pruning. Advisors are less likely to complain about losing products when the government can be used as scapegoat. Insurance companies save money by offering fewer products.
Since the tax rules for life insurance may not have major changes for decades, the pace of innovation could slow down. The trends are likely to continue, and that’s good for you.
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