Assuris: Insurance that Manages the Risk of Insurance
An Introduction to Insurance and Risk Management – Part 8.1
Imagine you are 35 years old. You are married and you have two children. A few years ago, you and your spouse each bought term life insurance policies from the Flawless Life Insurance Company (aka FlawLife – and not a real company). FlawLife was not as well known to you as the major companies, but the advisor pointed out that the premium they charged was significantly lower than it was for the other firms for the policies that you wanted, which was for $500,000 on each of your lives. The advisor also pointed out that your insurance policies were insured in case FlawLife went bankrupt. With that assurance in mind, you felt comfortable going ahead.
Wouldn’t you know it, three years later you learned that FlawLife was more flawed than flawless. They declared bankruptcy. Despite the fact that the Office of the Superintendent of Financial Institutions, which supervises and regulates federally regulated life insurance companies, monitored FlawLife, it went insolvent anyway. So, what happens to your life insurance policies?
As is the case with corporate bankruptcies, typically a liquidator is appointed to manage the bankruptcy process. The role of Assuris in this situation is to work with the liquidator to protect the interests of policyholders. Following the scenario above, rather than canceling the policies and paying out compensation, Assuris will facilitate the transfer of your policies to a solvent life insurance company and make sure that your benefits will continue under the original terms.
What is Assuris?
According to their website, “Assuris is an independent not for profit, industry-funded compensation organization founded in 1990. Our mission is to protect policyholders if their life insurance company fails.
“Every life insurance company in Canada is required by the federal, provincial and territorial regulators, to become a member of Assuris.”
What kinds of insurance products does Assuris cover?
Assuris covered pretty well every type of product that life insurance companies sell. To be clear about that, though, insurance products covered include: life, health (supplementary medical and travel), critical illness, disability, long-term care, and wealth management policies issued by life insurance companies, which can include annuities, segregated funds, and RRSPs, RRIFs, TFSAs and group pension plans.
How much coverage does Assuris provide?
Within specified limits Assuris provides 100% coverage of benefits. The terms are of coverage are summarized in the table at the top of this post.
To unpack this a bit, again using the illustration with which this post began, Death Benefit coverage of $200,000 means that for the couple who each have $500,000 of life insurance on their individual lives, since their policies exceed $200,000, Assuris will guarantee that they will retain their coverage to a maximum of 85% of $500,000 each, which is $425,000. If they had only had $200,000 of insurance each, they would have remained 100% insured.
The category of Health Expense refers to critical illness insurance, supplementary medical insurance and travel insurance. For example, in the case of a critical illness insurance policy, if you had purchased a policy that provided $100,000 of coverage, $85,000 would be guaranteed.
An example of Monthly Income would be an annuity. If you had purchased an annuity that generated $3,000 of monthly income, you would be guaranteed continuing coverage of $2,550 per month (85% of $3,000).
Cash Values refers to the cash value of a permanent life insurance policy. If the cash value had risen to $100,000, you would be guaranteed $85,000.
There are more details on the Assuris website. If you are in the market for a product sold by a life insurance company, you may want to reassure yourself by looking at the list of companies that are members of Assuris and also by having a discussion with your life insurance representative.
Making sure you are 100% insured
The table above points out that your coverage has its limits. If you want to further minimize the risk of loss, one option available to you is to take out policies at several different insurance companies. For example, a person who wants to purchase a $500,000 life insurance policy may want to use three different companies, buying $200,000 policies at two different insurance companies and a $100,000 policy at a third insurance company. This has its hassles, of course. There is the inherent complexity of having policies at three different companies, which means paying fees to three different companies, and smaller policies tend to pay more for each dollar of coverage than larger policies.
I thought I was done with insurance topics for now, but I have one more post. This one was about insuring the insurance companies, but there are two other insurance corporations that insure against the bankruptcy of financial institutions. They are known as CDIC for banks and CIPF for the investment industry. More on those next time.
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Disclaimer: This blog post is intended for general information and discussion purposes only. It should not be relied upon for investment, insurance, accounting or legal decisions.