Year end deadlines and policy changes on existing life insurance policies and annuities, and impact on grandfathered status.

Note: this information was taken from a bulletin provided by Manulife, but the content (aside from some minor differences in underwriting deadlines and terminology) reflects the changes as they apply to all insurers across Canada.

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On January 1, 2017, the tax rules that determine how life insurance policies and annuity contracts with prescribed taxation are taxed are changing.

Grandfathering rules

Policies issued prior to January 1, 2017 will be grandfathered under the current tax rules. Loss of grandfathering may occur if certain changes are made to the existing policies after December 31, 2016 causing them to be subject to the new tax rules.

New policies issued after December 31, 2016 will be subject to the new tax rules.

Important insurance deadlines for new business and policy changes in 2016

	Deadline to submit
New Business – New application with all UW requirements or final requirement	October 31, 2016
Inforce policies – “In good order” policy changes or final UW requirement for changes that would cause a loss of grandfathered status if done after 2016	October 31, 2016

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Products currently available for sale

Term insurance

For policies issued before 2017

Change made after 2016	Will the change be permitted?	Policy subject to new tax rules?
Add rider	Yes	Yes, if there is a coverage increase/addition
Exercise a GIO/BVP underwritten before 2017 on the base policy	Yes	No
Exercise a GIO/BVP to a new policy	Yes	No, for the base policy Yes, for the new policy
Conversion to a new permanent plan	Yes	Yes
Cost type/duration switch – without medical underwriting	Yes	No
Smoker to non-smoker change	Yes	No
Reduction/removal of a sub-standard rating	Yes	No
Ownership change	Yes	No

Permanent, Whole Life, Universal Life insurance

For policies issues before 2017

Change made after 2016	Will the change be permitted?	Policy subject to new tax rules?
Exercise a GIO/BVP underwritten before 2017 on the base policy	Yes	No
Exercise a GIO/BVP to a new policy	Yes	No, for the base policy Yes, for the new policy
Converting a term rider under the same policy	Yes	Yes
Add a new Deposit Option coverage	Yes	Yes
Increase in Deposit Option Lifetime limit with medical underwriting	Yes	Yes
Increase in Deposit Option annual payments without medical underwriting	Yes	No
Performance Credit/Dividend Option change – no coverage increase	Yes	No
Performance Credit/Dividend Option change – with coverage increase	Yes	Yes
Reduction/removal of a sub-standard rating	Yes	No
Ownership change	Yes	No
Smoker to non-smoker change	Yes	No
Cost type/duration switch – without underwriting	Yes	No

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The new tax rules apply to annuities with prescribed taxation purchased after 2016

Current tax rules apply when all the following are met:	New tax rules apply when all the following are met:
Annuity premium is received no later than December 31, 2016, and Application for Annuity is dated no later than December 31, 2016 and received by head office no later than January 6, 2017.	Annuity premium is received after December 31, 2016, and Application for Annuity is dated after December 31, 2016.

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The window is closing fast, and the price you may pay for not acting on this could be in the hundreds of thousands of dollars. Extra tax, real value taken out of the hands of your business, your retirement, your estate. Don’t wait, contact us today.