View Full Version : Surrendering Policies in Canada

07-05-2015, 01:42 PM
I'm getting a little throw off by contradictory statements in the Reg and Tax Module vs one of my readings for the ILA LP exam. Any clarification would be greatly appreciated.

Reg and Tax module. Sec 3. Pg 18
"There is no minimum nonforfeiture law for life insurance in Canada. Canadian actuaries use a concept of “group equity,” where values from terminating policies may be used to reduce premiums or raise benefits for all continuing policyholders. "

Canadian Taxation of Life Insurance. Pg 76
"At the time of the surrender, the policy holders is contractually entitled to an amount equal to the cash surrender value of the contract less policy loans and unpaid premiums..."

The Tax and Reg source makes it sounds like upon surrender the policy holder loses everything, while the Canadia Taxation of Life Insurance book makes it seem like the policyholder gets back their cash value less any adjustments.

07-05-2015, 02:03 PM
There is often significant value in excess of the cash value. This is assumed in the lapse rate assumptions. The first book sounds like it is referring to par policies, which can adjust benefits based on performance.

07-05-2015, 03:21 PM
Unlike the US, there is no equivalent to the Standard Nonforfeiture Law in Canada. Without this constraint, life insurers could set CSV to 0, but that would lead to some mighty angry policyholders and agents.

07-05-2015, 05:03 PM
Is it a safe assumption to interpret the "group equity" notion, or the surrendered value" as anything in excess of CSV?