Welcome to the complete history of term life insurance in Canada. Curiously, the term life insurance policies we have in Canada today didn't just happen organically. There are a number of cultural changes, flashpoints in the industry, and influential people through the years that have given us the robust marketplace and the types of term life insurance policies we have in Canada today.
1756: the first lecture on insurances
The first documented evidence of term life insurance goes back to 1756. Back then, an actuary by the name of James Dodson wrote a paper titled First Lecture on Insurances. That paper talks about pricing a whole bunch of different types of life insurance and it just tangentially mentions 1, 3, 5 and 7 year term insurance. I believe it was meant more as a technical exercise. It wasn't even called term life insurance — it was called term certain. And the reason for that is, back then, mid-1700s, we were really pre-industrial revolution. People didn't go out and work 9 to 5, bring home a paycheque, and support their family. Life was very much different back then. So there was limited need for term life insurance.
Late 1800s to early 1900s: the need for term, and industrial insurance instead
That stayed the same until the late 1800s, maybe the early 1900s. Now we're post-industrial revolution and people in fact are going out to work 9 to 5, bringing home a paycheque, and supporting their family. So we now actually have a need, culturally, for term life insurance.
Unfortunately the answer for term life insurance wasn't term life insurance back then. The response to people working was actually something called industrial insurance.
Let me give you some proof of that. Here's an actuarial book from the late 1800s. It only talks briefly about 5, 10, 15 and 20 year term. Here's another book, a very technical book, called First Principles of Insurance from the early 1900s. This book doesn't even mention term life insurance — it talks about all the other types of life insurance. Here's an agent book from the late 1800s. He talks about the life insurance policies he sells to his clients. Term life insurance isn't even mentioned in this book.
Here's another book from the early 1900s. This book is more of an agent book. It talks about term life insurance and there are two curious points I'd like to make. First of all, when he talks about term life insurance in this book he mostly contrasts it with permanent life insurance, and kind of the intent is you really should be getting permanent insurance. But he also mentions not just term insurance, but renewable and convertible term insurance. He mentions renewable term really wasn't a thing back in those days, even though today it is. So renewable and convertible is something we're going to see from the 1900s right up through to today. The agent does mention, however, that convertible term is a very important feature. This is going back over 100 years.
So that takes us to the early 1900s — up to about 1950 or so — when term life existed but was very much a niche product.
1960s and 1970s: rebels in the industry and the rise of the broker
Let's move to the 1960s and 1970s. At that time, life insurance agents in Canada were tied to one specific company. You had to sell that life insurance company's products. If you wanted to sell another life insurance company's products, you needed a piece of paper every time you did this called a Single Case Release. It was permission from the life insurance company for you to sell another company's product. So as you can imagine, life insurance agents were required to sell their company's products — and specifically what the company wanted you to sell, which wouldn't have been term life insurance.
Then something happened.
A company called Transamerica Life started sponsoring agents, and instead of requiring them to have a Single Case Release for every single case, they handed them a full stack of pre-signed Single Case Releases and said, "Here you go, don't even talk to us, go sell whatever you like, whenever you like, and you're probably going to sell a lot of our stuff because we've got really good term life insurance policies." And sure enough, that's what happened.
People such as Art Grimes and Buck Scott were the very first life insurance brokers in Canada sponsored by Transamerica, and they started doing what was best for their clients, which in many cases was starting to sell term life insurance. I don't want to minimize how important these people were in the creation of the environment we have today. These people were the forefathers of term life insurance sales in Canada. They were completely outside the industry. The industry didn't work that way, the regulations didn't work that way. These people were bucking the trend.
It was so important to them to be able to do this that Buck Scott actually mentions this in his obituary. Let me read you a line from Buck Scott's obituary:
"Buck was proud of pioneering term life insurance in Ontario and later helping usher in the brokerage system that allowed him to serve his customers best."
So his family recognized his important contribution to the system we have in place today, as do I.
1980s: personal computers let brokers comparison shop
Now, in the 1980s, something happened. Again, this is a bit of a flashpoint. We have the introduction of the personal computer. And what the personal computer let us do was let you compare prices across a whole variety of companies. So these same rebel Transamerica brokers that were out there selling term life insurance could now actually shop out — do those premium comparisons that are all over the internet today — and shop out the 60-plus life insurance companies and start selling the cheapest.
So in the 80s, the introduction of the personal computer let these rebel brokers start selling based upon cost. Prior to that, this wasn't possible.
1980s: Art Williams and David Chilton awaken Canadians to term insurance
Now in the 1980s, two very influential people emerged in Canada — actually one of them came from the States — that helped drive consumer awareness of term life insurance.
The first person's name was Art Williams, or A.L. Williams. He pushed out a sales strategy called buy term invest the difference. This concept isn't perfect, but one thing it does do is polarize people. It cuts everybody right down the line — you're either for term insurance or you're against it. And of course since he was promoting term insurance, the answer was you should only ever buy term life insurance. It was a little bit of a controversial sales strategy, but one thing it did do was it really was easy for consumers to understand, and they got the idea they really should be looking at term life insurance first.
The second influential person was a fellow by the name of David Chilton. David Chilton wrote a book called The Wealthy Barber. This book was wildly and spectacularly popular. Everybody bought a copy. I've got a signed copy because I met Dave when he wrote the book. Here's a direct quote from his book:
"Although as you pointed out, there are a number of different types of policies, there's only one that you, Cathy and Tom, will probably ever need — renewable and convertible term."
There are two noteworthy things about that quote. First, he says you really should be buying term life insurance — there's only one type of policy that you need, and that's term life insurance. Second, he doesn't just say term life insurance. He says renewable and convertible term. I don't think David Chilton said that arbitrarily. I think he was being very specific. You don't want just term insurance — you want renewable and convertible term, which we already saw another author talking about going back to the early 1900s.
So, Art Williams and David Chilton in the 80s — two very influential people. What they did was bring term life insurance to the awareness of Canadian consumers.
Late 1980s and 1990s: American-style policies arrive, and 5 year term dies
Around that time — late 80s and early 90s — we had a shift in the marketplace. A number of American life insurance companies moved into Canada and brought their American types of term life insurance with them. American term policies and Canadian term policies at the time were not the same.
The way Canadian policies worked at the time was: you'd take a medical exam, get your policy for the term, let's say 5 years. And at the end of the 5 years, your renewal premiums were the same as somebody at that age who bought a new policy and took a medical exam. So you'd be 30 years old, buy a 5 year term at cheap rates, and at 35, without taking a medical exam, if you kept the policy, you'd get the same premiums as someone who's 35 who bought a brand new policy and took a medical exam. You didn't take a medical exam, but you got the same prices as somebody that did.
American policies didn't work this way. They had cheaper term premiums upfront, but at renewal the pricing was based upon the idea that you hadn't taken a medical exam recently, so we don't know what your health looks like — therefore the renewal premiums were much higher. The result of this was that Canadian policies were a little more expensive upfront but cheaper later. American policies were way more expensive later, but a little bit cheaper now.
Remember those computer shopping systems we were talking about? The American policies were showing up top in all those shopping systems. Agents were running those multi-company quotes and the American companies were all coming up top. The result of that was two things. One: Canadian companies shifted over the 80s and 90s, from their initial structure over to an American style of term life insurance policies where renewal premiums are much higher than they were.
The second thing was, effectively, it killed 5 year term. What you used to do was buy a 5 year term, and every 5 years you got really good rates. Why would you pay the higher premiums on a 20 year term when 5 year term was cheaper and you had great renewals? So 5 year term really went by the wayside, and longer terms such as 10, 15, 20 and even 30 year term now very much became the standard. 5 year term is only rarely available on the marketplace now, whereas back in the 80s and 90s it was a very popular type of term life insurance policy.
1990s: welcome to Term to 100
Now we're into the 1990s. Something happened in the 1990s — a new type of term insurance. This is actually arguable — some people call it term, some people call it permanent. It was basically a blend of both term and permanent, called Term to 100.
Term to 100 was like term insurance in that there were no cash values. It was like permanent insurance in the sense that premiums weren't level for 10, 20 or 30 years — they were level for life. It was kind of a blend of both.
Unfortunately — or perhaps fortunately — the policies were priced incorrectly. They used something called lapse-supported pricing. That's outside the scope of this video as to what that actually is. Needless to say, it was priced too cheaply, which is good for consumers because they bought a ton of it, but the prices simply weren't sustainable. So eventually, over time, the prices on Term to 100 premiums went up and it became much less of a bargain.
2000s: the internet drives price compression
Let's move forward to the early 2000s. By the early 2000s, we've got a new factor in play — the internet. Around that time, late 90s and early 2000s, people were going online, they had PCs at home, and they had access to the internet. I actually put online the first Canadian multi-company quoting system on the internet for consumers. That quickly went viral, a lot of websites started offering that kind of stuff, and it's littered all over the internet today. You can go online almost anywhere and shop out prices.
The impact of that, in my opinion, is that because it let consumers now shop prices on their own at their leisure, it really drove competitive pricing. What we used to have were large variances in term pricing, down to the point today where we have differences in prices among the top 10 companies that are almost inconsequential. I know everyone's shopping on price, but if you look at the cheapest company and the fifth cheapest company in Canada, it'll be very few dollars difference in prices. That's because in the early 2000s these online shopping systems went online.
2008 and 2009: the financial crisis kills Term to 100
Now let's fast forward to 2008 and 2009. You may recall the financial crisis. The financial crisis destroyed a lot of things in the financial world. One of the things it hammered was long-term bond rates. Life insurance companies count on conservative, interest-yielding investments like 40 year bonds to save for over the long term for these long-term life insurance policies. Interest rates after the 2008–2009 financial crisis brought 40 year bond rates to almost zero, so life insurance couldn't earn interest.
The result of that was the death of Term to 100 life insurance policies in Canada. Not too many years after the 2008–2009 financial crisis, a few life insurance companies started to leapfrog over each other raising prices on Term to 100, and eventually almost every life insurance company in Canada simply withdrew from the marketplace. So Term to 100 is still out there — you'll hear it in literature and stuff like that — but in the marketplace there are few if any viable Term to 100 life insurance policies left in Canada.
Today: a marketplace in turmoil
Fast forward now to today. The Canadian term marketplace, perhaps despite appearances, in my opinion is actually in turmoil. There are a couple of reasons for this.
Covid, and what counts as a "medical exam"
The first is Covid. Pre-Covid, when you did an insurance application, life insurance companies would send a paramedical person out to your home to do a medical questionnaire and then a blood and urine test. With Covid, of course, you can't be going to people's homes and drawing blood and urine. So life insurance companies transitioned to a medical interview — either through a form, a questionnaire, or often a telephone interview. Because they no longer have access to blood and urine, if they need additional information they just reach out to your doctor and get a report. So medical exams changed from being an in-person blood and urine draw plus a questionnaire, to really just a questionnaire either through a form or a telephone interview. That was the first thing that changed.
The second thing that changed was the rise of companies similar to The Term Guy selling term life insurance directly to consumers online — no more direct agent involvement. But there's a bit of a discrepancy or disagreement on how to market that.
When Canadian consumers are going online looking for term life insurance, they want a variety of things. They want the cheapest prices, of course. They want instant access to their policy — they want to click a button and be insured immediately. And they don't want any medical exam.
Now we have a situation where you can't actually have all three of those things. You can't have cheap rates, no medical information, and instant issue of policies. Something's got to break. Otherwise, you've got people who are on death's doorstep getting the same life insurance policies as professional athletes, and clearly that doesn't work.
So what breaks? What companies are doing is they're billing these telephone interviews or forms — where they conduct medical history — as "no medical exam." Is it? There's disagreement on that. You can make your own choice as to whether you think that's a medical exam.
Let me give you an example. Here's an online life insurance company called Mosaic Life. This is out of their FAQ:
Will I need to complete a medical exam or provide bodily fluids as part of my application?
For most people, no. Unlike other life insurers, we do not typically require you to provide blood and urine samples to complete a medical exam. Instead, we base our decision on our online questionnaire, which for most people takes under 10 minutes to complete.
Curiously, that is actually exactly like most life insurance companies — particularly term life insurance companies. You are just either completing a form or doing a telephone interview, and there's no blood or urine. This company's billing that, like others, as a no medical exam. So we've now got a marketing strategy where people are looking to promote life insurance applications online as no medical exam, when in fact there is a medical questionnaire. And it's exactly what consumers want. Or you have other companies — and certainly The Term Guy's an example of this — where we don't bill that out to consumers or market it as a no medical exam policy.
Chopping policy features, including renewable and convertible
The second thing that's happening is that, to be able to provide some version of those three things consumers are looking for, policy features are now being chopped. A number of online term life insurance policies have been released to the Canadian marketplace where they're chopping a variety of features. Some of them are actually increasing premiums, but not all of them are. The way to do that is: they chop the renewable and convertible part. So we're now seeing the rise of term life insurance policies that are no longer renewable and no longer convertible.
If you recall, we had people going back over 100 years emphasizing the importance of renewable and convertible. We had it again in the 1980s when consumer advocate David Chilton came out and stated in his very popular book The Wealthy Barber that in fact you needed to purchase renewable and convertible term policies. And today, we now have consumer advocates such as Preet Banerjee, who's recently released a video talking about exactly this. He's got a video — you can look it up on YouTube if you search Preet Banerjee renewable term — where he spends 5 or 10 minutes telling consumers how important it is to make sure your online term life insurance policy is in fact convertible and renewable.
So where are we at today? What we have is a marketplace that's a bit in turmoil. We've got a number of different marketing companies trying to address consumers' needs. Some are billing their policies as no medical policies. Some are dropping the renewable and convertible features. Where do we end up in the future? I think it's really going to depend on how consumers feel about the importance of renewable and convertible term. And unfortunately, the importance of those features isn't something consumers see when they purchase their policy. It's something you don't see typically until the end of your renewal period, which often is 10, 20 or 30 years. So consumers won't recognize this for probably a decade or two in the future — about whether they actually care or not about renewable and convertible term.
So again, that's the complete history of term life insurance in Canada. My name is Glenn Cooke, I'm The Term Guy.
