The Insurance and Investment Journal contacted Canadian life insurance companies to find out how they are preparing for the changes to the exempt test rules coming into effect January 1, 2017. The insurers answered the three following questions and their answers are presented in our table:
- Do you intend to launch or withdraw products to meet the new tax requirements?
- What is the target date advisors should aim for their clients to be under the existing rules?
- What policies are in place, in the event there is a rush that could tie up your underwriting teams?
Do you intend to launch or withdraw products to meet the new tax requirements?
BMO Insurance: BMO will launch an updated suite of products in October. BMO says it won’t be making pricing changes to their Whole Life and Term Life but will be aligning these to the new tax rules.
CUMIS Life: CUMIS says their products will continue to be tax-exempt under their business rules and won’t be withdrawing any products.
Desjardins: See “The race is on to issue policies before the new tax rules take effect”.
Empire Life: Had previously announced in July, that they would discontinue three products to meet new tax rules.
Equitable: Yes, products need to be redesigned to continue to be tax exempt. In addition, some product features may be removed as result of the tax changes.
Foresters Financial: There are some products that will be replaced, and some withdrawn. The timing and launch dates will be finalized in the next few weeks; communications will be sent out at this time.
Great-West Life (including Canada Life and London Life): See “The race is on to issue policies before the new tax rules take effect”.
iA Financial: iA launched Equibuild in partnership with PPI. This product is in compliance with the new rules.
ivari: ivari will relaunch its UL products to meet the tax requirements. The multiple life insured option will be removed as it won’t be tax free. Advisors should stop selling the products past December 5th.
La Capitale: Will adjust current UL products to meet the new requirements. The new product will be ready early 2017 and will be similar to the current one.
Manulife: Manulife has not announced product changes but says it plans to bring product developments to the market and expand the attractiveness of the products it offers.
RBC Insurance: Currently has no plans to launch any new products.
SSQ Financial Group: Current product features will not change. Contracts issued after 2016 will conform to the new tax rules in effect at that date.
Sun Life: Sun Life will adapt its permanent life insurance products to accommodate the new tax exempt rules.
What is the target date advisors should aim for their clients to be under the existing rules?
BMO Insurance: BMO has advised November 1 as the cut-off date for new applications under the current rules. Existing policy changes must be received by November 18.
CUMIS Life: Currently finalising their transition rules and deadlines for year-end business. CUMIS says it’s possible the CRA will issue more guidance before the end of the year to clarify this issue.
Desjardins: September 30.
Empire Life: Empire says its Trilogy, Optimax and Vital Link products won’t be available for sale from October 15. They say all applications for these products must be received by October 14.
Equitable: Has not set a specific date but encourages advisors to submit applications as soon as possible so Equitable has ample time to underwrite the product with grandfathered tax status.
Foresters Financial: All underwriting must be completed prior to Dec 28, 2016. At this time, we will be carrying out marketing efforts and will be releasing communications that will outline the specific dates.
Great-West Life (including Canada Life and London Life): November 1 is the latest date to receive applications, with illustrations when required, for conversion, election or exchange to a new policy issued in 2016, and to receive a paper application or a Web application for new business.
iA Financial: iA Financial advises that all applications should be submitted and received by October 15.
ivari: ivari has communicated to advisors that they should aim to submit their applications before November 15 to ensure time to underwrite the products.
La Capitale: Recommends applications are submitted by October to ensure time for approval. Encourages advisors to submit ASAP and to ensure applications are completed correctly to not delay underwriting.
Manulife: October 30 is the deadline Manulife has set for all completed documents to be submitted to Manulife.
RBC Insurance: At press time, the company was discussing the deadline and said it will be announced very soon.
SSQ Financial Group: SSQ is communicating it must receive life insurance applications by September 15 and the file must be complete by December 15 in order for the contract to be governed under the current tax rules.
Sun Life: October 21 – New Life applications and policy Changes and Conversions with underwriting. November 1 – Policy Changes and Conversions with no underwriting.
What policies are in place, in the event there is a rush that could tie up your underwriting teams?
BMO Insurance: BMO says its teams are prepared to deal with an increased volume of activity and will communicate more details about their transition rules in the Fall.
CUMIS Life: CUMIS says they’re prepared to handle any rush but expects the year-end to be similar to most years for their business team.
Desjardins: See “The race is on to issue policies before the new tax rules take effect”.
Equitable: Has seen an increase in applications this year. (could be from tax changes) Equitable has increased and re-organized staff to accommodate the existing and potentially increasing volumes.
Empire Life: Empire Life has hired additional underwriting and administration staff.
Foresters Financial: We are currently in the process of developing a process, which will be confirmed through our marketing and communication efforts.
Great-West Life (including Canada Life and London Life): See “The race is on to issue policies before the new tax rules take effect”.
iA Financial: iA does not plan to hire additional staff. The company can count on staff from other sectors in case of an overflow.
ivari: ivari says it has internal processes to avoid a backlog if it does happen. The insurer advises to submit more complex cases well before November 15 to allow enough time.
La Capitale: Will be monitoring closely to avoid any backlogs. The insurer believes delays won’t be a big issue as it caters to the middle market where there are not a lot of backlogs.
Manulife: Manulife says advisors working with them have received regular communications about the deadline and procedures.
RBC Insurance: RBC has advised it will do its best efforts to ensure a smooth process.
SSQ Financial Group: We do not anticipate problems with underwriting. If necessary, we will use our usual plans of action to treat high volumes in a short period of time.
Sun Life: Sun Life will continue to monitor business volumes and have planned for the potential of increased business in the latter half of 2016.
The new rules will affect level COI UL policies the most
The insurers generally said that the new exempt test tax rules will impact Universal Life policies, especially with Level COI rates, and the Investment Income Tax. Removing explicit surrender charges from tax calculations will impact any product that levies these charges against the values accumulating in a policy says Manulife. The changes will impact the reserve value calculation in tax calculations and will effect insurance products depending on the premium or cost-of-insurance structure. The reserve changes have a meaningful impact on level cost-of-insurance structures but very little or no impact on yearly renewable term cost-of-insurance structures in Universal Life policies.
Many insurers said the new tax rules will affect the calculation of the taxable amounts for prescribed annuities. They add that the changes will result in an increase in the taxable portion of the income, however the pre-tax life annuity income will not change.
