On Nov. 4, 2020, Canada Life axed the addition of the second-generation Lifetime Income Benefit (LIB) option to its segregated funds, InsuranceINTEL Weekly, a sister publication of Insurance Journal, discovered. This decision also applies to London Life and Great-West Life segregated funds.
The move affects segregated funds with an LIB option added after Oct. 18, 2012. Segregated funds with the first-era LIB stopped accepting contributions in 2013. As a result, no further contributions can be made to segregated funds with the LIB option, either as a lump-sum or a pre-authorized contribution (PAC).
Clients who have already authorized a PAC can continue their contributions at current or lower amounts and frequency, until March 1, 2021, the InsuranceINTEL bulletin notes. “After Mar. 1, all PACs will automatically be stopped,” Canada Life says. Pre-authorized contributions cannot be increased.
The insurer tells advisors “If your client would like to continue to contribute past this date, you’ll need to help them open a new segregated fund policy that doesn’t include the LIB option.”
Interest rates to blame
In its FAQ section, Canada Life pins this change on the “current and ongoing low interest rates and the impact on the value of the product.” The insurer explains that “maintaining this product would have meant substantially changing the product features and offering it at an unreasonable cost, which would not have been in the best interest of our clients.”
Canada Life is not the first insurer to attribute this decision to long-term interest rates, which play a key role in the profitability of guaranteed insurance products. The two most common ways insurers have reduced their exposure have been to increase the price of a product (e.g. by introducing a new generation of the same product) or to discontinue it altogether.
Canada Life says that purchases of the LIB option have dwindled over the years. “We currently have minimal sales of this option,” it notes. The insurer confirmed its commitment to improving its product line by constantly re-evaluating it according to market conditions.
Features intact
Clients retain their lifetime income benefit entitlement for contributions already made, the bulletin adds. The LIB fees are not changing at this time, the insurer confirmed to InsuranceINTEL Weekly. “All policies with the LIB option (era 2) will continue to have the same features, and income will continue to be paid on-going,” the insurer states. Benefit levels and income percentages remain unchanged, as do the bonuses the insurer gives to clients who defer withdrawals.
No backpedaling
The Lifetime income benefit illustrator and Income allocator tools will be removed from the advisor sites after Nov. 13, 2020, Canada Life mentions in its FAQ section.
Clients can transfer the lifetime income benefit option to a new policy. After Nov. 3, 2020, however, transfers will be limited to the following situations:
• Registered savings to registered income transfers where full policy value is being transferred;
• Ownership transfers considered a deemed disposition for tax purposes;
• Registered policies with joint-life income where the primary annuitant has died.
Clients cannot remove the lifetime income benefit option and add it back on later, the insurer points out. Once the LIB option has been removed, all benefits and features of the LIB option will be removed from the entire policy and cannot be reinstated in the future.
