As our Federal and Provincial Governments go further and further in debt, so does their need to squeeze ever more tax revenue out of all of us Canadians. The 2017 tax changes for life insurance and annuities are two examples of this. With life policies, there is potential for some of the payout on death to now be taxable. Life annuities will have increased taxation levels on the monthly revenue stream paid out.
These changes will also impact the level of allowable savings to be held to grow tax deferred within life insurance policies and negatively impact new policies set up on for quick payment. Individual provinces have either increased or are looking to increase the level of premium tax they charge on life related insurance policies. Alberta recently raised the tax by 1%.
Insurance companies keep mortality and morbidity records to calculate the actuarial risk involved with every different type of coverage. Mortality records allow accurate prediction of age at death within the population. Morbidity records track the numbers who get sick with specific illnesses and when. The latest legislation passed by the Federal Government saw members of parliament voting in favour of a bill that would prevent health and life insurance companies from having clients disclose the results of any genetic testing. The theory is, if individuals are getting tested and finding out they may be at a risk for cancer, heart attack, stroke, etc., they would then rush out to purchase more life, critical illness or disability coverage. Insurance companies call this anti-selection, a process whereby individuals could determine they are at a greater risk of dying or getting sick and still get coverage. The net result of this legislation will force price increases over all types of coverage. Up until now, with Canadians living longer, life insurance rates have trended down. This new legislation could also eliminate the popular return of premium rider option with critical illness and force insurers to go to yearly increasing term rates as well.
So what does this mean to an average Canadian? If you are needing to purchase any of these products, now is the time to do it. Critical Illness and long term care products should be purchased now to still get the current features and benefits before these are unavailable to cut insurance companies risk and cost.
The issue still exists that there are a huge number of Canadians with no life or related coverage, inadequate coverage, out of date plans or term plans that have had gone through several renewals. These could be replaced at much lower monthly premiums for the same value or increased coverage over what they now have.
Everyone’s insurance needs are different, and they change for each individual as stages of life change. For many younger Canadians, the bigger need could be for disability (DI) or critical illness (CI) coverage. DI is for income replacement should you become sick or disabled. CI is a tax free lump sum payment to help with recovery from a critical illness. There are now hybrid options available that combine life, DI and CI in affordable bundles as a starter package.
Please take the time on a regular basis for a review of your coverage with a trusted life insurance professional to ensure you have adequate protection at an affordable price.
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