Term insurance products more flexibleBy Alain Thériault | March 12 2013 08:47PM
As interest rates propel permanent products’ prices ever higher, the spotlight is turning to term products. They have always been cheaper, but they are now more flexible and personalized than ever.
Term life insurance outsold other product categories in the first nine months of 2012 for number of policies sold in the Canadian market. Compared with the same period in 2011, the number rose by 14%, compared with 8% for whole life. The number of universal life policies fell 13% during this period, a recent LIMRA report reveals.
This growth spurt is accompanied by a trend toward increasing diversity beyond the conventional T10, T20, and T100 framework. The market is homing in on Canadians’ needs. From the search for solutions adapted to the duration of consumers’ loan or mortgages, to protecting the family from loss of income during the insured’s working life or when the children are young. Others turn to term when they take out loans to start a company.
Targeting all these needs in one swoop, Desjardins Insurance recently launched new T30 insurance and more flexible T20. The insurer has also added other conversion choices that had not been announced by press time.
Nathalie Tremblay, health products manager, individual insurance, at Desjardins Insurance, describes these changes as an essential shift toward greater flexibility. The exchange option – a rarity in the market – means that insured can exchange temporary ten-year coverage for T20 or T30, without having to present new proof of insurability.
“For example, a young breadwinner with a limited budget who wants to cover a 25-year mortgage can do so entirely with a 10-year term policy, which is more affordable. After five years, he can exchange it for T20 and thus obtain protection that corresponds exactly to the duration of the mortgage,” Ms. Tremblay explains.
In January, Manulife Financial launched a term insurance product at age 65 that targets insured looking for protection during their working life. “The term market is beginning to differentiate around features instead of just competing on price,” says Steven Parker, assistant vice-president, product and marketing, Individual Insurance at Manulife. The insurer’s T65 supplements its T10, T20 and T100 along with a more recent line.
Mr. Parker explains that this T65 is the logical extension of a new series. It joins the product line that includes Synergy, a product that combines life T65 critical illness and disability, launched in 2011. The line also features a critical illness product to which Manulife added T65 coverage this past fall. “T65 protects the working years of the insured, or protects his insurability until retirement. It targets individuals from 18 to 45 looking for affordable protection and guaranteed premiums,” he continues.
This trend toward insurers’ expanding their term product line off the beaten track is solidifying. Foresters offers the whole gamut of term: 5 years, 15 years, 25 years, and 30 years, in addition to its recent T10 called E-Z Term. Derived from E-Z Life, launched in June, the product is a simplified issue. Clients can purchase it without having to take a medical exam or tests; they simply answer a series of health-related questions.
Similar offers abound. Assumption Life and L’Excellence, an Industrial Alliance subsidiary, offer T15 and T25 life products. UL Mutual offers five-year term. These products are renewable and convertible.
ACE INA Life offers 80-year term. This singular product is not renewable or convertible. SSQ Financial Group offers 70-year term, a product inherited from AXA (Tempo 70), and Co-operators offers T75. Neither product is renewable or convertible.
Industrial Alliance and Sun Life Financial carry products with adjustable term. Industrial Alliance’s Pick-a-Term T10 lets insured select any term between 10 and 40 years. Sun Life’s product distributed by the career network comes with terms of 1 to 8 years.
Blue Cross (Ontario and Québec) has introduced a unique platform in the market, Blue Flex. This hybrid product can include T65. More than 20 guarantees are available, such as loss of use and accidental fractures. Its structure includes riders so that multiple products can be included in the same contract, for one policy fee: health, disability, critical illness, and more.
La Capitale also stands out with a one-of-a-kind product: T20.10. Protection Insured can exit this T 20 after 10 years and recover the cash surrender value. This value corresponds roughly to the difference between the premiums paid on the T-20 for 10 years and those the insured would have paid into a T10, a cheaper product.
If, however, the insured decides to keep their T20 policy for the whole term, they can renew it for 10-year terms thereafter. This product complements the insurer’s traditional term products, T25, T30 and T35.
Other players are adding multiple facets to their traditional products. BMO Life Insurance offers three forms of T100: Pure, Plus and Platinum. It also carries two T10s: preferred rate and simplified. The trend toward simplified products has the wind in its sails, Mr. Parker, of Manulife says. “In the term market, consumers are usually looking for – number one – affordability and number two, simplicity,” he says.
Toronto-based Canada Protection Plan focuses on underwriting and simplified issue products. A niche distributor well established in the hard-to-insure market, CPP offers proprietary individual life insurance products, including several term products. Foresters is the underwriting insurer.
Known as non-medical life insurance, CPP’s Deferred Term, Simplified Term, and Simplified Term Plus are T10, T20 and T100 with coverage of up to $225,000. Once insured are accepted, policies are issued in a few days. These products are renewable but not convertible.
“We are filling a need in the marketplace,” says Mark Tateishi, vice president of business development for CPP. Many cases that come from our MGAs are clients that don’t suit traditional underwritten products, or those who don’t like needles, medical tests or medical visits.”
Canada Protection Plan strongly believes that advisors can use their products to build a clientele by helping people who are hard to ensure. “We are giving advisors a new opportunity to sell,” adds Mr. Tateishi.
Canada Protection Plan has exclusive distribution rights to its products, written by Foresters. It operates through the MGA channel. CPP has contracted distribution agreements with most MGAs in Canada.
CPP recently strengthened its position in Quebec, a market which it entered in 2004, says Cynthia Wang, executive vice president for CPP. “We actually are expanding our presence in Quebec. We operate through 16 of the biggest MGAs in Quebec and we doubled our production there in the last year,” she says.
Desjardins easing its rules
Desjardins Insurance’s preferred rates are also more flexible than previously. Ms. Tremblay says that the insurer is loosening its health criteria to let more people obtain preferred rates on term insurance, under categories P1 and P2.
“Our criteria for high blood pressure and cholesterol are more relaxed,” Ms. Tremblay says. “Clients can now qualify for categories P1 and P2 even if they are taking drugs for these two conditions, as long as they are following an appropriate diet.”Height/weight limits have also been relaxed for high blood pressure. Lastly, the insurer no longer considers family history for these two health problems.
As a result, a growing number of insured fall into the two best categories, situated above the regular category (P3). From barely more than 20% in 2011, the proportion reached nearly one-third of insured in 2012. While the two categories of smokers (P4 and P5) remained static despite the changes, the regular category has evolved considerably. The proportion of insured in this category plunged from 69.0% to 61.2% between 2011 and 2012.
Ms. Tremblay underlines a form of flexibility that she considers unique to her company: multi-coverage discount. This discount is very advantageous for clients who buy more than one type of coverage. Very often, advisors will build personalized solutions for the client, she points out.
She describes how this discount works: for each person insured, the amounts of eligible coverage insured are added together. The totals are then used to determine the band rates used for each coverage. The rates generally indicate the insurance cost per $1,000 of coverage. The higher the insurance coverage, the lower the rate, and hence the rebate.