I see commercials on television advertising the Canada Deposit Insurance Corporation (CDIC) on a fairly regular basis. This is the insurance that banks provide in the event of a financial failure, your deposits that were held at the bank are protected (subject to limitations). Many people are familiar with this idea, but is there protection out there in the event that a life insurance company goes bankrupt?
It hasn’t happened recently but there are examples of Canadian insurance companies going bankrupt. Most recently it was Confederation Life in August of 1994. What happened to the policies that people owned with a company that is now bankrupt? Similar to the CDIC, insurance companies have access to Assuris, an insurance policy for your insurance policy. They protect your coverage in a variety of ways.
When it comes to how they work, Assuris will try to get any polices that you own transferred to a company that is solvent. This comes with some assurances regarding the coverage.
- For death benefit you receive up to $200,000 or 85% of the original face value, whichever is higher.
- For policies with cash value, you are protected up to $60,000 or 85% of the cash value, which ever is higher.
How does the protection work? If you had a term life policy with a death benefit of $175,000 then the new carrier would continue to offer the same amount as it is below the $200,000 threshold. If it were a policy with a $1,000,000 benefit then the new carrier would provide you with $850,000 (85%) in coverage. These are not considered new policies so you won’t have to undergo any medical underwriting (health questionnaire or medical examination) to get the coverage. The math carries on for cash values as well, if it is below $60,000 then the full amount is protected. Beyond that amount you receive either $60,000 or 85% of the total whichever is higher.
One important aspect to the coverage form Assuris is that it is applied across all of the policies that you own with an insurance company. If you own multiple $200,000 policies with the same carrier and they failed, the total of all of you policies is added up and then the 85% rule is applied to that number, not a per plan basis. Assuris also provides protection for annuities, segregated funds, critical illness policies, disability insurance and long term care insurance. Similar to life insurance there are limitations that apply, but the coverage of these valuable benefits are included under the Assuris umbrella.
So the answer to if there is protection for my life insurance is yes. Check to make sure that your insurer is covered by Assuris and you know that the policy that you have in place is protected if the issuing company falters.