Conflict of Interest - Commissions

Life Insurance companies (in Canada) create a huge conflict of interest for their agents. Life Insurance comes in different flavors, Term, Whole Life, Universal Life. Each policy has its pros and cons and price point. Insurance companies pay agent with commissions, and commission rates are different between policies. This causes agents to try and sell inappropriate and too expensive policies to their clients.

Term insurance is what most people need. If you are a family and have a mortgage, you will want cheap term insurance, usually a term 10 or term 20. This will pay off you mortgage and provide income to your family after you die.

Let’s say you have a mortgage for $200,000 you want paid off and want to provide $30,000 of income to your spouse for 10 years. You therefore need about $500,000 of insurance.

Commissions are based off of the first years premiums of the policy you buy. Some agents also get paid a bonus but I won’t get into that here.

• Term 10 pays 40% of the first years premium as commission
• Term 20 pays 50% of the first years premium as commission
• Whole Life and Universal Life usually pay about 70%.

As you might guess the higher commission a policy pays the more expensive it is. Say you are a 40 year old male, non-smoker and want $500,000 of insurance. A term 10 policy should cost $405/y paying 40% commission the agent will make $162

Now the greedy agent will try and sell you a Whole Life or Universal Life which pays 70% but also costs about $5000 per year. Which stands to make them $3500 in commission.  The agent stands to make 20 times the commission if they sell you the more expensive policy. So they push these policies HARD.

Not many people are willing to fork over $400 per month, so what happens is the agent talks them down on the amount of insurance to say $100,000, which costs $1000 per year, which the client can afford. The agent still makes 4 times the commission of the Term Insurance sale, but the client is now drastically underinsured. 

Moral of the story, be sure to know what you are buying and for what reasons. Don't be afraid to get a second opinion. Ask friends or family what kind of insurance they have, and why. Better yet, ask how the agent is getting paid, and ask how much. We legally have to disclose that we are being paid a commission, but nowhere does it require us to state dollars and cents. Ask that question, if your agent gets nervous there might be a reason why.

--
Robert Reynolds, GBA
Certified Group Benefits Advisor
Hendry McKenzie Reynolds Employee Benefits Ltd.

Toll Free: 1-888-592-4614
rob@hmrinsurance.ca
www.hmrinsurance.ca

E.O. E.

Govt of Canada - Real Return Bond - Long Term

It is a weird time for Life Insurance company financials. On one hand you have MASSIVE corporate profits

Manulife $1.2 Billion in Q1 2012

Great West Life $451Million in Q1 2012

Sun Life $686 Million in Q1 2012

And yet, insurance companies are all terrified of the current prolonged low interest rate environment.

Manulife just increased their Universal Life and Term 100 rates again, this is the third or fourth time in a year or two. And earlier today RBC Insurance announced that they had just pulled the plug on all of their long term insurance products.

RBC today announced they will suspend sales of:

• RBC Universal Life
• Term 100
• Long Term Care Insurance
• Critical Illness T100
• Critical Illness term 75 paid up at 65
• Critical Illness Return of Premium on surrender riders
• Quantum Disability Insurance

What do these policies all have in common? A long term horizon of age 65, 75 or 100. 

Why are many companies raising their rates or as RBC has just done pull products from shelves?

Simply because with the current low interest rates they can't make a profit on these long term policies.

The way insurance companies finance these long term policies is they buy long bonds, usually 10-30 year maturities. Since these long bonds are paying so little interest (Govt. of Canada Real Return Long Bond is yielding 0.38% as of June 13, 2012) they need to put aside a lot more capital in reserve to pay out future claims. These higher capital reserve requirements mean they either have to increase rates to consumers, or simply say enough is enough and pull the products with long horizons as they simply can't make money off them.

Short term, insurance companies are posting huge profits, long term the future looks shaky especially if interest rates stay low.

*Edit - I also just got a notice from Industrial Alliance Pacific that they too are increasing rate on July 3 2012.
rates are increasing by 3-10% for long term products such as Universal Life, term 100, Term to 65, Critical Illness and otehr similar long term policies. Something interesting to note, the increase for those age 60+ is only about 3% in most cases, if you are under 60 your increases are 7-10%. Why the difference? Well if you are 60+ you are going to die sooner...  

--
Robert Reynolds, GBA
Certified Group Benefits Advisor
Hendry McKenzie Reynolds Employee Benefits Ltd.

Toll Free: 1-888-592-4614
rob@hmrinsurance.ca
www.hmrinsurance.ca

E.O. E.

Insurance Journal is a industry magaize that I subscribe too. On occasion they put out internesting comparisons of products or insurance companies.This month they have an interesting comparison of Living Benefits products from various insurer. 

Below you will find a comparison of the Critical Illness coverage provided by insurance companies across Canada. Not all products are created equal. This list shows the different conditions that are covered or not covered as the case may be. 

I have highlighted the products I tend to use in green. You will notice they are the most comprehensive of the bunch.

Click to enlarge

They also had a good comparison of Non-Cancelable (good quality) Disability insurance. Manulife has a couple good DI policies, but they aren't included.  I don't personally use Manulife's DI policies, but only for the reason that I know RBC and Canada Life better and I have not yet found a situation where Manulife is the better option.

Click to enlarge

For very high incomes and very skilled professions, Lawyers, Doctors, white collar business owners etc. I much prefer the RBC Professional contract. The wording is from an older DI policy from decades ago and you can actually read it! a 5 year old could read it and understand it. Most newer policies, not so much. It is my opinion that the RBC Professional policy is probably the strongest policy available today, but it is hard to get and is expensive as you might expect.

For Blue Collar business owners, and employees who want a high quality Disability Insurance plan I like Canada Life as their plan is more customizable and you can mix and match options to make a more affordable plan for those that don't need all the bells and whistles built into the RBC plan.

--

Robert Reynolds, GBA

Certified Group Benefits Advisor

Hendry McKenzie Reynolds Employee Benefits Ltd.

Toll Free: 1-888-592-4614

rob@hmrinsurance.ca

www.hmrinsurance.ca

E.O. E.

Pharmacy Dispensing Fee Update

The last time I saw a survey on Pharmacy Dispensing Fees in BC was in June 2009, I posted about it here.
Since it has been nearly 3 years since that data was collected I decided to make a few phone calls to local pharmacies in Victoria BC. I have compiled the current dispensing fees in the table below

The blank spaces are pharmacies which are not present in Victoria BC, so I did not call them. Keep in mind that these numbers are from a single location of each company. The location closest to you may very well charge a different rate.

One neat "secret" I discovered is that you do not need to be a member of Costco to use their pharmacy. Drug costs are also often tied closely to the dispensing fees charged. So it is a safe bet the same drug will cost less at Costco, than at other pharmacies.

Your mileage may vary.
--
Robert Reynolds, GBA
Certified Group Benefits Advisor
Hendry McKenzie Reynolds Employee Benefits Ltd.

Toll Free: 1-888-592-4614
rob@hmrinsurance.ca
www.hmrinsurance.ca

E.O. E.