Life and Health Insurance

Tax changes affecting life insurance – effective January 1, 2017

Following a series of measures adopted in the 2012 federal budget, a number of changes will be made to tax rules affecting life insurance, effective January 1, 2017. These changes are primarily aimed at standardizing the tax treatment of products as well as provide greater consistency among life insurance products offered by insurance companies.

These changes will have an impact on all products, particularly universal life insurance policies. Prescribed annuity contracts will also be affected.

Click here for an overview of tax changes affecting life insurance – effective January 1, 2017

The changes stemming from the new tax rules are significant. You are advised to contact your clients and to review their current needs. However, these changes will not have a major impact on most clients.

Each case is unique, depending on the financial and tax situation of your client. A separate analysis is required.

IN-FORCE POLICIES

Policies issued prior to January 1, 2017, will not be affected by these changes, UNLESS certain changes are made to these policies on or after January 1, 2017. In that case, the new tax rules will apply to these policies. Here are the main changes that will result in the loss of grandfathering rights for existing policies:

• Addition of or increase in life insurance coverage with evidence of insurability (e.g., term insurance coverage is added).

• Term insurance is converted into permanent insurance.

It may be a good opportunity to meet with your clients to discuss whether it is in their interest to make changes to their existing policy or take out a new policy now. A detailed analysis of their needs and situation will help you to determine whether it would be best to make certain changes in 2016 or in future years.

In the coming weeks, we will communicate any changes to SSQ products and to the treatment of universal life in-force policies. Watch for updates in our next newsletters.