Canadians had 13 consecutive months of sub-2.5% inflation before America’s conflict with Iran helped push the headline inflation rate to 2.8% in April and then 3.2% in May, its highest level since December 2023.
While inflation came in lower more recently, settling at 3% in July, the economic outlook remains uncertain. Statistics Canada reports that the average price of gasoline has risen 40.6 cents a litre across the country since the start of the war, and it remains unclear when the conflict will come to a full stop.
For those on the wrong end of the K-shaped economy, the cost of living is making everything tougher, including budgeting for life insurance.
Wealthier Canadians can afford permanent policies, according to advisors and managing general agents (MGAs), while some middle-income households are struggling to fit term coverage into increasingly tight budgets.
Older Canadians at the upper end of the K have no problem meeting their insurance needs as the market booms, said Terry Zavitz, senior vice-president of employee benefits, retirement, life and living benefits with Hub International in London, Ont.
Younger clients, however, are feeling squeezed by housing costs, child care and inflation, she said.
“I get calls where clients say, ‘Everything is so tight, I’d like to make sure that I have the right coverage.’”
Premiums drive conversations
Pricing per $1,000 of term coverage has generally trended downward over time, said Mathieu Charest, head of insurance business at Manulife, who oversees individual insurance pricing. And competition among carriers continues to put downward pressure on rates despite inflation.
But even as Canadians grow more price sensitive, inflation itself is putting them in the position of needing more coverage.
“The amount of coverage you need now is higher than before … because of things like inflation and a more expensive housing market,” Charest added.
Clients are increasingly asking agents to find term coverage within a set monthly budget, said Jeffrey Talor, managing director of life and sickness brokerage with Ratehub in Toronto.
Talor recently worked with a couple who had taken on a mortgage but had no life, sickness or disability coverage.
“We had to reverse engineer [based on] how much they could afford,” he said.
Designing a policy solely around a monthly budget can leave clients underinsured, said Kirk McMillan, president of Toronto-based MGA The Gryphin Advantage.
Clients often ask what $100 or $200 a month will buy, he said. Advisors need to show how much coverage that budget buys, how it compares with the client’s actual need and what any shortfall could mean for their family. That includes explaining what clients give up when they choose a smaller face value or shorter term to reduce the premium.
Building in flexibility
For mid-market clients, price isn’t the only consideration. They also want flexibility in case their insurance needs change.
The demand for flexibility is putting more emphasis on product features such as conversion privileges, particularly when premium differences among carriers are relatively small, Zavitz said.
Carriers are offering clients more choice in term lengths, Charest said. While 10-, 20- and 30-year terms were once the norm, 15- and 25-year terms have become commonplace, giving clients a better match between coverage periods and financial obligations.
Conversion options are becoming more flexible as well, Charest added. Rather than choosing between renewing an entire term policy or converting all of it to permanent insurance, some products allow clients to convert only part of their coverage and leave the remainder as a term policy.
But offering that flexibility makes pricing more complex, Charest said. The more term lengths an insurer offers, the fewer policies it may have in each pricing category, leaving smaller pools of experience data for factors such as age, sex, rating and term length.
“If you only have a T10, it’s very easy to reprice. If you have 30 [different] term lengths, it’s much more difficult,” he said.
Layering or laddering
Beyond choosing products with more flexible features, advisors can structure a client’s overall coverage through layering or laddering.
Gryphin is seeing more layering, in which clients buy coverage for their immediate needs and add another term policy as those needs grow, McMillan said. For example, a client might buy a term-20 policy to cover a mortgage and purchase another term-20 several years later after having children.
But waiting to add coverage adds risk.
A second $300,000 term-20 policy bought at age 40 will generally cost more than one bought at 35, and a change in the client’s health could push premiums up or affect their insurability, McMillan said.
“It goes back to the advisor looking at the best way to cover as much of the need as possible given the financial constraints of the clients.”
Laddering takes a different approach. Instead of adding coverage later, clients buy several policies with different term lengths at the outset, Talor said. That locks in coverage while allowing the total amount insured to fall as financial obligations shrink.
For example, a client may expect to pay off a mortgage in 10 years, see their children finish post-secondary education in 20 years and retire in 30 years. They could buy term-10, term-20 and term-30 policies at the same time, then renew, convert or cancel each policy as the need disappears.
But neither strategy eliminates the trade-off between what clients can afford today and what they may need later.
Even when clients can’t afford all the coverage they need, partial coverage can still lessen the financial impact, McMillan said.
The challenge for advisors serving the mid-market is balancing affordability with coverage needs.
“It’s all about the planning process,” Zavitz said. “If they truly find that a $1-million term insurance policy is too much, you ask, ‘OK, what amount can you afford that won’t leave your family destitute?’”