The History of Life Insurance Companies in Canada
Today we’re going to be talking about the long history of Insurance in Canada, and how it has grown and changed since then.
In fact, Insurance is actually older than Canada, and has ties to some of Canada’s most historic figures.
The Four Pillars of the Canadian Financial System
Insurance Companies are one of the 4 pillars of the financial system in Canada. Canada’s financial system is built on banks, insurance companies, trust companies and pension funds.
Banks:
Banks accept deposits and make loans. They offer things like bank accounts, credit cards, loans, and mortgages.
Insurance companies:
Insurance companies provide protection in case things go wrong. The industry is split into 2 parts – general insurance and life insurance. General insurance covers stuff – like car insurance, condo insurance, business insurance, boat insurance, etc.
Life insurance covers people – it provides protection against things that physically happen to you – like getting sick or injured or passing away.
Trust companies:
Trust companies specialize in trust, loan and investment activities. They often hold the money that underlies investments and offer services like investment management, personal and business loans, and trust services for customers.
Pension funds:
Pension funds are long-term investments offered by a company or government to provide retirement income for their employees. There are generally 2 types of pensions – defined benefit pensions and defined contribution pensions. There used to be more defined benefit pensions, but today most of them are defined contribution.
Life Insurance is older than Canada
Safe Pacific Financial is in the life insurance world so that’s what we’re going to talk about today.
Life insurance is older than Canada. There are actually some life insurance companies around today that have been around since before Canada became a country in 1867.
At that time, Insurance Companies were included in the very creation of the Canadian Financial System.
Due to this, life insurance has special tax advantages that you can’t get anywhere else. The key one being life insurance is tax exempt and the growth inside an insurance policy is tax deferred.
This means that when life insurance pays out, that payout is tax free. If your parents or grandparents have a life insurance policy, the benefit payout from that policy will be entirely tax free.
The tax deferred part means that when you put money inside a life insurance policy in Canada, that growth is tax deferred. This means that you don’t pay any taxes on that growth until you withdraw it. This includes whole life policies and universal life policies. It also includes life insurance policies that you hold personally and life insurance policies that you hold inside a corporation or a trust.
This is very powerful to know.
How Life Insurance has grown in Canada over time.
The first life insurance company in Canada was the Canada Life Assurance Company, or Canada Life which was founded in 1847. Canada Life is still around today and has over $500 billion dollars in total assets under administration for over 17 million Canadians.
We work pretty closely with Canada Life – actually they recently bought the agency where we process our business called Financial Horizons Group.
Another interesting bit of life Canadian life insurance history has to do with Canada’s first Prime Minister, Sir John A MacDonald.
In 1887, after serving his term as Canada’s first Prime Minster he actually became the first president of a brand new insurance company The Manufacturer’s Life Insurance Company, which we know today as Manulife. In the US, you’ll know Manulife under their name John Hancock Insurance.
Another interesting date in Canada’s financial history is 1917 when Canada introduced the Income War Tax Act – which we now know as just the Income Tax Act. If you’re super nerdy, the original income tax was 4% on anything above your personal exemption which was $1,500.
This was supposed to be a temporary tax to pay for World War 1, but it was made permanent in 1949 after World War 2.
Life Insurance is an important financial tool for Canadians
Life insurance is an important financial tool for Canadians, providing financial security and peace of mind for families in the event of the unexpected.
Life insurance companies in Canada paid out $14 billion dollars in death benefits in 2020, over $36 billion in health benefits and over $46 billion in retirement benefits. Roughly $100 billion in total payout to Canadians in 1 year.
Today, there are dozens of life insurance companies operating in Canada, and we work with most of the big ones.
From its beginnings in the 18th century to its current position as a key player in the financial system, life insurance has played an important role in protecting the financial well-being of Canadians for over 250 years.
Next Steps:
At Safe Pacific Financial, we specialize in helping Canadian business owners, incorporated professionals, and investors structure life insurance for maximum wealth protection, tax savings, business growth and estate planning.
To discuss your life insurance needs with our team, simply schedule a Discovery consultation here. No pressure. No rush.
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