Life Insurance: Who is selling it?

InsuranceAbout the Canadian Council of Insurance Regulators

If you are considering buying insurance you should start the right way and this mean knowing who you are dealing with. This should be easy but it is not. This is because of the lack of uniformity across the laws enacted by the different provinces. The business of insurance falls under the provincial jurisdiction and this creates many legal challenges in defining who can sell insurance. This has resulted in many misrepresentations as to the duty that agent owe you versus the duty owed to the insurer.

To define the value of a service, you have to consider the representation that was made at the beginning. If right from the start you have a misrepresentation on the identity of who is offering you a service and selling you a product, the value proposition is compromised. Knowing the identity of who you are dealing with in the financial industry without having a misrepresentation casting a shadow over the advice you are getting or the product you are purchasing is the first right of consumers. This right must be enforced and protected!

On Financial Planning

Richard Proteau

You can buy insurance through an intermediary and this intermediary is required to hold a license in order to solicit, take a life application and offer insurance advice. You can also buy insurance directly from the insurer in many different ways. Usually this involves an organization which is not a licensed intermediary securing a life insurance master contract and offering the members of the organization the opportunity to buy the insurance. NO ADVICE CAN BE PROVIDED to the members. A bank could be such an organization when signing a contract with an insurer to access a mortgage life insurance product which is then offered to clients taking a mortgage with the bank. Alumni association life insurance is another example where members of an association can buy insurance directly from the insurer without advice.

In this text we will deal with licensed intermediaries.

1. Agents

In all provinces except Quebec and Newfoundland the only licensed intermediary that can sell life insurance in an agent. In Quebec and Newfoundland the licensed intermediary is called a representative.

For most provinces, an agent can only represent one insurance company which is the sponsoring company if he is starting out or multiple insurance companies after a certain number of years (autonomous agent). An agent can also decide to enter into a contractual arrangement with a primary insurer called sponsoring insurer, committing to put business with this primary insurer only. This agent is called a captive agent or non-autonomous agent. The primary insurer for the captive agent may allow him to deal with other secondary insurers. In most cases, captive agents have that right when the primary insurer has signed intercorporate arrangements with other insurers or when the primary insurer creates its own MGA solely for its own captive agents.

See our review and ratings of life insurance to know more…

2. Brokers

For most provinces the term broker is undefined or prohibited for life insurance agents. Only Alberta has a clear definition of a broker where an autonomous or non-autonomous agent (captive) can be a broker for the moment they represent more than one insurance company.

3. Independance

An agent cannot be independent – this is legally impossible. Do not mistake independence for autonomy. They are different things. An autonomous agent has the full discretion of being able to select the insurance companies with whom he will enter into an agency contract. The non-autonomous agent does not have that discretion.

Is it better to choose an autonomous agent over a captive agent? What are the pros and cons...

An agent has the actual or apparent authority to act the behalf of the principal. He is not independent to act outside of this authority. This would be a violation of the agency relationship. The principal can be the insurer or the consumer. For example, when taking an application, the agent is acting for the insurer and owes a duty to that insurer. When an agent who can sell many insurers is shopping for the best product he is acting as an agent for the consumer and owes a duty to the consumer.

The principal is also responsible for the actions for his agent. Despite the protests of insurance companies who argued falsely about the independence of agents, justice courts have imposed a duty upon the insurers towards its agents. For example, the insurer is legally responsible to ensure that its agents are knowledgeable about the insurer’s product he is selling and that he is trained in using the illustration software. If the insurer does not live up to this responsibility, the insurer is liable for the consumer’s losses.

A big problem with the authority delegated to the agent by the insurer is that it is defined in the agent contract signed by the insurer and the agent. The consumer is not a party to this contract nor is he disclosed any of the provisions of that agent contract. Therefore the agent authority may be deemed to be what an average person would think the authority of the agent to be. This is quite subjective but important to understand when taking action against an insurer for the actions of one of its agents.

Here is a table summarizing the legislation for each province. You want to know why it is important to know who you are dealing with, then consult our text Moving to another province – what about my agent? or Segregated Funds versus Mutual Funds

insurance law


There is only one person responsible for your money and it is you. It is important to know what is right and when/how it is right


Knowing your rights is the only path to deciding whether you will do it yourself or delegate some responsibilities to an advisor

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Table 1: Autonomous Agents versus Captive Agents
TOPICS Autonmous Agents Captive Agents
Selling ONE insurance product For most provinces, an autonomous agent who is newly licensed can only sell ONE insurer; his sponsoring insurer. After a number of years, he can sell all insurers he contracts with. For all provinces, a captive agent who is newly licensed can only sell one insurer; his sponsoring insurer. After a number of years, the captive agent can sell other insurers if the sponsoring insurer allows it.
Selling MORE than ONE insurance product In most provinces, after a certain number of years of being licensed, the agent can choose to contract with any number of insurers. He has the discretion to choose how he will contract with one insurer either directly or through an intermediary called MGA. When shopping for the best product, the autonomous agent has the advantage. In all provinces, the captive agent can sell the products of other insurers if his sponsoring insurer allows it. The captive agent does not contract directly with other insurers. It is the sponsoring insurer that will contract with other insurers by signing intercorporate contracts with these insurers or by creating an MGA which will contract with other insurers while being exclusive to the captive agents.
Training Training is very weak for autonomous agents. The agent's knowledge of the products he is selling is not monitored or checked. Insurers and MGAs should be monitoring their agents' knowledge but they are not. It is therefore up to the autonomous agent to keep his knowledge up to date. Using a newly licensed agent who is autonomous is very risky unless the autonomous agent is supervised by a senior agent. Training for a newly agent is formalized and structured. It is the training ground for new agents. We could believe that since captive agents traditionally sell fewer products, they would have a better knowledge of their products but we have seen no indication of this. Autonomous agents and captive agents show the same amount of knowledge when selling multiple insurers.
Conflict of Interests Conflict of interest are a concern and will depend on how the autonomous agent contracts with an insurer. Consumer should stay away from agents that contract directly with an insurer as sales quotas and incentives will impact the objectivity of the agent. Consumers should also stay away from agents who contract with too many MGAs as the same will occur. Conflicts of interest are also a concern with captive agents but are different. The captive agent will get paid differently if he sells a product of his sponsoring insurer versus selling the products of another insurer. In most cases, he will be disqualified from receiving bonuses and other incentives such as qualifying for trips. The difference in compensation will be substancial casting a shadow on the objectivity of the captive agent.
Service Service is an area of concern when dealing with an autonomous agent. Autonomous agents sign vested service commission contract where they retain the commission of service even if they do not provide the service and a new agent is chosen by the policy owner. This makes it very difficult for the policy owner to get a new agent since the new agent will have to work for free. Orphan policies are the result of autonomous agents. At death of the agent your policy could be serviced by the estate of the agent and this means the wife, uncle, brother... looking after your policy. Autonomous agents who have committed fraud can keep your commission of service and retain the right to service your policy. Captive agents do not own the commission of service or ultimately the block of policies. It is owned by the sponsoring insurer and as a result that insurer or the insurance branch where the agent resided is responsible to provide continuity of service. There are no orphan policies. You can change agent however this agent must be another captive agent of the insurer. Usually in the captive agent contract there is an automatic buyout provision. At the death of the captive agent, the block of policies is automatically sold to another captive agent.
Compliance Compliance is an area of concern when dealing with an autonomous agent. Compliance of the contracted agent is the responsibility of the insurer with whom the agent contracted. The insurers delegated that responsibility to the MGAs. MGA which are mainly product providers did not take on these new responsibilities. The Insurance Act was not changed to recognize the role of MGA in regrds to compliance. As a result, there is little compliance structure with the autonomous agents and this represent a risk. Captive agents are under the supervision of the branch of the sponsoring insurer which has a compliance department. As a result, compliance is not an issue with captive agents.

Broker versus agent?

The term broker represents little value to the consumer. The real question is whether using an autonomous agent is better compared to using a captive agent who can sell many insurers as well. When we look at the ability to access better products, we feel the autonomous has the advantage. There are less possible conflicts of interest for the autonomous agent if that agent does not deal directly with one insurer and if the agent uses one MGA only. With captive agents, because it is the norm for the sponsoring insurer to pay less if the captive agent sells the product of other insurers, the potential for a conflict of interest is greater. In terms of training, service and compliance, the captive agent has the advantage. In the end, it comes down to choosing the right advisor and we can help you do this through our ADVISORIGHT program


Mortgage Life Insurance versus traditional insurance...

There is a lot of misinformation regarding mortgage life insurance. Let's first deal with the myths:

1. My mortgage insurance will be cancelled if I change lender. This is false. If you buy the mortgage life insurance through a bank, the mortgage life insurance is usually NOT portable to another lender. However, if you buy the mortgage life insurance through a mortgage broker, the mortgage life insurance will remain in place even if you renew with a different lender. Mortgage life insurance should be considered to be group insurance. Portability will depend on who signed the master group insurance contract. If the bank signed and owns the master contract, then the insurance will not be portable to another bank. If the brokerage firm signed the master contract, then the insurance is portable because the ownership of the master contract is independant of the lender.

2. Mortgage insurance is subject to post claim underwriting. This is true but it is also true for all insurance. If you buy traditional insurance, the insurer will do post claim underwriting if the insured dies in order to review the information provided by the insured. There are countless cases where a claim was refused by an insurer in regards to traditional insurance. There are no data that supports the belief that claim denials is higher for mortgage life insurance than traditional life insurance.

3. The bank has denied the insurance claim. This is incorrect. A bank does not process a death claim. it is the insurer that processes the death claim. In that instance the bank or lender is only the messenger.

4. The main drawback with mortgage life insurance is that the amount paid on death is tied to the amount of the outstanding mortgage. Since the mortgage balance declines over time, the insurance is also declining while the premium remaims the same. The second negative is that you are unable to name a benificiary and choose who will receive the death benefit that will be paid.

5. Should I buy mortgage insurance? The answer is YES unless you have all the insurance that you need. First take the mortgage life insurance while ensuring that you take the time to read and answer carefully the questions found on the application. In the following months, you will have acclimatized to your purchase, and you should be ready to apply for traditional insurance based on the right amount determined through a rigorous need analysis. Use our need analysis web application to do this. If you are accepted as a standard risk without any forms of rating you can proceed in replacing the mortgage life insurance. If you are rated, your mortgage insurance is now valuable. Do not replace it. Keep it while considering adding to it by taking the traditional insurance that is rated.


Term or permanent insurance?


Most Canadians do not have enough insurance to cover their need and as result they should not be buying permanent insurance. Permanent insurance is only a need in very specific situations such as in business planning.

You should not consider permament insurance unless you have purchased all of the life insurance calculated in your need analysis. If you have enough life insurance, the life agent should have reviewed your need for disability and critical illness before talking about permanent insurance. Permanent insurance should only be used for estate planning. It should NOT be used for investment purposes or for supplementing retirement income. When shown as an investment, permanent insurance is a scam as revealed in the book Uraveling the Universal Life Scam


Life, disability or critical illness?

The first need is always life insurance. This is the need that you don't recover from. It is also the cheapest need to address.As a result, buy the life insurance that you need before buying any other type of insurance

Disability is the second need. If your employer is not offering you group disability, this need become almost as important as life insurance. Please note that if you are single without dependants, a need analysis would show your need for life insurance to be very small. While disability would still be secondary to life insurance, most of your insurance premium would go towards disability.

If your employer is offering you group disability insurance, then you have a choice to make. You may decide to top-up your disability insurance with an individual disability policy in order to extend the own occupation clause beyond 2 years. You may also believe that critical illness represents a greater risk. you would therefore buy critical illness insurance instead. While I prefer critical illness, at this point it is a matter of family history and preferences. Uncertain whether your agent is showing you the right solution. We offer you peace of mind with SolutionsRightwhere we will review the insurance solution proposed by your agent if you require a second opinion. Please note we do not sell any insurance. This is a consumer protection program and the only goal is to protect consumers. While this program is free, the consumer gives us the right to gather information and use that information in our research and publications.


Should I replace my insurance?

If an agent is proposing to replace your insurance, you should consider first what type of product you are replacing.

Replacement of term policies: Term insurance is considered a commodity. As a result, the replacement of a term policy will be driven by cost. A few years ago, during the term pricing wars, the cost of term insurance went down 10% every year. So you could literally replace a term policy every few years to save the policy owner a lot of money. Those days are gone. Therefore if a term is replaced, it is because it is approaching renewal and the premium will increase by a factor of two or three. The consumer should ask why he is faced with a renewal. Did the agent sell the right term with the right duration? If the agent sold him a Term 10 instead of a Term 20, the agent should be held accountable for his error.

Replacement of permanent insurance: There is a reason why it is called permanent insurance. There are no reasons that exist that could justify the replacement of a permanent insurance policy unless it has been incorrectly sold to you at the beginning or the current agent is trying to take advantage of you by replacing a good policy to generate commissions. If the cost is increasing on your permanent insurance it is probably because it is a YRT policy. Most YRT policies have a right of conversion to level cost of insurance. So you would convert the policy instead of replacing. However that conversiion does not generate commission while the replacement does. We offer you peace of mind with SolutionsRight where we will review the insurance solution proposed by your agent if you require a second opinion. Please note we do not sell any insurance. This is a consumer protection program and the only goal is to protect consumers. While this program is free, the consumer gives us the right to gather information and use that information in our research and publications.

Replacement form must be completed by the agent and presented to you prior a replacement. Please read these forms carefully to determine if surrender charges will apply to the replacement, will there be a taxable gain, will there be a loss of future benefits? A new policy will have a new 2 years suicide and misrepresentation clause.


What should I be getting from the agent ?

1. Need analysis: you should be getting a need analysis showing clearly why you need this insurance and what amount of insurance you need.

2. Quote of the 10 best companies for the cost of the product you are considering buying showing the premium for each company and the underwriting requirements for each company. Attached to this sheet should be the recommendation of the agent clearly explaining why he thinks you should select one particular company.

3.A list of the insurance companies that the agent authorized to act for.

4. The commission that the agent will receive from the insurer including bonuses. This should indicate if this commission differs by insurer and whether the agent will receive a higher commission by placing with the insurer he recommended. Uncertain as to who to select for an advisor?Let us do this selection for you by using AdvisorsRight . Our program will match you to the right advisor. Please note we do not sell any insurance. This is a consumer protection program and the only goal is to protect consumers. While this program is free, the consumer gives us the right to gather information and use that information in our research and publications.