2017 life insurance tax changes

2017 Tax changes - what they mean to you

In the 2012 federal budget, the Finance Department announced legislation to modernize the life insurance exempt test and related policy owner rules. These changes are effective January 1, 2017.

Read about the transition rules Sun Life has developed to be the least disruptive to your business and clients.

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Tax education

These materials help you understand the tax changes, and what they mean for your business.

Tax changes - Simply put

An overview of the life insurance tax changes effective January 1, 2017. Read about the key changes and the main points of grandfathering.

Tax changes - The details

Take a detailed look at the 2017 tax changes and how they impact life insurance. Included is an overview of the exempt test policy, the 8% rule, the 250% test, calculation of the NCPI, ACB of a life policy, and grandfathering.

Impact of the changes to sales strategies

Review how the 2017 taxation rules may impact sales strategies for individuals, corporations, insured annuities, and borrowing/leveraging strategies.

Advisor guide to grandfathering

Given the long-term planning objectives of life insurance, it's important to understand what can cause grandfathering to be lost and how to avoid it.

In news

Life insurance transition rules: questions and answers

For applications with Transition TIC up to $1 million

Sun Life Financial has taken a lead role to propose and advocate for transition rules that help clients receive 2016 tax treatment for policies with underwriting that extends into the early part of 2017.  Find out more about our transition rules, key dates for business already submitted, conversions and more.

Summary of key dates

Submitting client applications by the deadlines below won't guarantee the policy will be issued under the 2016 tax rules. Special quotes and very large cases should be submitted earlier to meet timelines. Any submissions containing plan changes, or requests for alternate policies will affect timelines, and may not be possible in December. We'll make every effort to issue as many cases as possible in order to preserve grandfathering.

Scenario Best practice deadline
Applications without Temporary Insurance Certificate (TIC)

Submission date: October 21, 2016

Underwriting requirements: November 8, 2016

Final issue instructions: December 2, 2016. Cases in underwriting after this date will be issued as applied and/or approved. 

Mail date: December 28, 2016

Policy delivery requirements must be at Sun Life in good order by March 24, 2017

Applications within the TIC total coverage limit: 

$1 million up to age 70

$100,000 for ages 71 and over

Submission date: December 31, 2016 by 6:00 pm EST

Applications must be submitted in good order with one month's premium payment.

The TIC provides temporary coverage for 90 days from the application signed date.

All AML requirements need to be received within 30 days of the application signed date.

Policy delivery requirements must be at Sun Life in good order within 90 days of the application signed date or by March 24, 2017, whichever is earlier.

Conversions with underwriting

Submission date: October 21, 2016

Underwriting requirements: November 8, 2016

Final issue instructions: December 2, 2016

Mail date: December 28, 2016

Policy delivery requirements must be at Sun Life in good order by March 24, 2017.

Conversions without underwriting

Submission date: December 31, 2016

Policy delivery requirements must be at Sun Life in good order by March 24, 2017.

Questions and answers

Q: Can the RapidApp be used?

A: Yes it can. These applications must be received in good order with a TIC and payment / arrangements by December 31, 2016, 6:00 pm EST.

Q: My client's application is still pending underwriting. Do I need to add a TIC, or submit a new application in order for 2016 tax treatment to apply?

A: If underwriting requirements cannot be received by November 8, you may want to consider submitting a new application with a TIC however this will not guarantee that the policy will quality for 2016 tax rules.

Q: For my case already pending, the client wants to add a TIC. Do I need to complete a full application?

A: For pending cases up to the age based TIC limit: Please submit a new application with a TIC and request for the old application to be closed. 

For pending cases over the age based TIC limit: Please submit a new application with a TIC for the maximum age based TIC amount and provide direction for the original application that is still pending.

Q: For pending cases without a TIC or over the TIC age based limit, what happens if the case isn't mailed by December 28, 2016?
A: A plan change request form 4710 and an illustration need to be completed to give direction on which new 2017 product this pending case should go to. If direction isn't received by January 20, 2017, we will close the 2016 application, and clients will need to reapply with a fully completed new application for new products. Changing investment options or changing plan type to SunUniversalLife II or Sun Par plan on a pending application
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Q: I'm concerned my case won't be mailed by December 28, 2016. Will new applications and illustrations be required in January 2017 for the new products?

A: For 2017 products, a plan change request form 4710 and an illustration will be accepted as long as the original application signed date and underwriting evidence is less than 6 months old. A new application will be required for cases over 6 months old. Because the products are changing, the client will need to fill out the product information only and a new illustration will be required. If you need the 2016 product, and the face amount is within the TIC age based limit, you'll need to submit an app with a TIC before December 31, 2016.

Q: If the client is rated and the offer is not the same as applied for, is the client bound to take the policy, or can the client change their mind once approved?

A: If updated issue instructions cannot be provided before December 2, 2016 to preserve 2016 tax rules, the policy must be accepted as is. Clients must accept any rated cases within the 10 day offer from the underwriter by December 2. Clients can reduce their face amount in 2017 without losing grandfathering on their policy. If the application was submitted with a TIC and premium, the client can decline the offer and we'll refund any premiums the client paid.

Q: What happens if a client applies for and is issued (but not settled) a 2016 policy, but then decides they'd prefer the new 2017 series?

A: For 2017 products, a plan change request form 4710 and an illustration will be accepted as long as the original application signed date and underwriting evidence is less than 6 months old. Because the products are changing, the client will need to fill out the product information only and a new illustration will be required.  A new application will be required for cases over 6 months.

Q: What happens if a client's policy isn't mailed by December 28, 2016 and they decide they'd like a new 2017 policy?

A: You can submit a plan change request form 4710 and a new illustration. This request will be treated as if applying for a new policy, with a new policy number, using the new underwriting and issue requirements.

Q: I would like to submit an application without the TIC. What is the deadline to get 2016 tax treatment?

A: Applications without the TIC should be submitted by October 21. All underwriting requirements should be received by November 8, 2016, and we need to receive the client's decision on our offer by December 2, 2016 with the policy mailed by December 28, 2016.  These dates won't guarantee the policy will be issued under the 2016 tax rules, but we will make every effort to process as many cases as possible in order to get 2016 tax treatment.

Q: If I submit multiple $1 million applications with a TIC, will each policy be accepted for 2016 tax treatment?

A: No. We are only able to issue up to $1 million in coverage for TIC, per client.

Q: If I submit a case over $1 million, and receive one month's premium for the full face amount and issue the TIC for $1 million, can the case's underwriting continue into 2017, and will the full amount be issued under 2016 tax rules?

A: No. The maximum face amount with a TIC to have underwriting continue into 2017 is $1 million up to age 70 and $100,000 for ages 71 and over. In this case, since the face amount is over $1 million, the policy needs to be underwritten and mailed by December 28, 2016 in order to qualify for 2016 tax treatment.

Q: Can we get alternate policies for our applications?

A: No.  We will issue one policy per application. 

Q: I submitted an application using the TIC. If the client changes their mind, will Sun Life refund the premiums the client paid at application?

A: If the client chooses not to proceed with their policy, Sun Life will refund any premiums paid.

Q: The maximum TIC limit is $1 million for proposed insureds under age 71 and $100,000 for proposed insureds age 71 and older. Does this mean for ages 71 and older, the maximum application amount is $100,000 to get 2016 tax rules?

A: Yes. Under the TIC to preserve the 2016 tax rules the policy face amount must be within the TIC limits. The maximum face amount for proposed insured clients age 71 and over is $100,000. Applications for face amounts over $100,000 for clients aged 71 and older will not qualify for 2016 tax rules if the policy is not mailed by December 28, 2016. 

Q: What is the cutoff date for conversions and plan changes to get 2016 tax treatment?

A: For conversions without underwriting: applications for conversions can be accepted up to December 31, 2016. The policy settlement requirements must be received by March 24, 2017 with an effective date of conversion in 2016 in order to preserve 2016 tax treatment. 

For conversions and plan changes with underwriting: conversions that require underwriting, such as conversions with an increase in face amount must be submitted by October 21, 2016. All underwriting requirements are due on November 8, 2016 and we must receive the client's decision on our offer by December 2, 2016. The policy must be mailed by December 28, 2016 in order to preserve 2016 tax treatment.

Q: Will in-force plan changes be possible and still preserve grandfathering?
A: It depends. Please see the Advisor guide to grandfathering for more details.
Q: My application has a TIC. Can I get a pending policy re-issued for a reduced face amount?

A: No, the policy must be issued as applied for.  The client can request a decrease in face amount once the policy is in-force.

Q: My application has a TIC. Can I change the plan type (product) before the underwriting is finished?

A: No.  In order to qualify for 2016 tax rules the policy must be issued as applied for.

Q: Will you accept faxed applications?

A: No, we cannot accept faxed applications.

Q: Will current dating be possible for a 2016 policy settling in 2017?

A: No. Policies issued with 2016 rates need to have a policy date in 2016. Any requests to current date 2016 polices issued between January and March 2017 will be declined.

Q: Can I back date 2017 policies to save age to 2016?

A: No. 2017 policies will not have the option to back date to save age if the date occurs prior to 2017.

For applications with Transition TIC greater than $1 million up to $10 million

Questions and answers
For applications with Transition TIC greater than $1 million up to $10 million

Scenario Deadline
New applications: face amounts greater than $1 million, up to $10 million for ages 2-70.
This is a new form for these cases only.
Not available for Term insurance or health products

Submission date: December 9, 2016

Applications must be submitted in good order with one month's premium payment.

The TIC provides temporary coverage for 90 days from the date the application is signed.

Financial underwriting requirements must be submitted by December 16, 2016.

All AML requirements need to be received within 30 days of the application signed date, and by December 31, 2016 at the latest.

Policy delivery requirements must be at Sun Life in good order within 90 days of the date the application and Temporary Insurance Certificate are signed or by March 24, 2017, whichever is earlier.

Pending applications face amounts greater than $1 million, up to $10 million, submitted on or after September 1, 2016

For applications greater than $1 million up to $10 million that were submitted on or after September 1, 2016 and you believe:

  • the client will not be rated or declined, and 
  • the medical underwriting is not expected to be completed by December 16, 2016,
Clients can apply for coverage using the Transition TIC form only.

Submission date: December 9, 2016

TICs must be submitted in good order with one month's premium payment.

The TIC provides temporary coverage for 90 days from the date the insurance application is signed.

Policy delivery requirements must be at Sun Life in good order within 90 days of the date the TIC application was signed or by March 24, 2017, whichever is earlier.

Pending applications greater than $10 million The transition TIC does not apply and underwriting must be complete and policy must be mailed by December 28, 2016.

Please note that submitting applications by these deadlines won't guarantee the policy will be issued under the 2016 tax rules. But we'll do our best to make it happen.

Q: Can I use the transition TIC for pending applications $1 million and less?

A: No. Please submit a new application with the TIC portion of the application completed.

Q: Can I use the transition TIC for applications over $10 million

A: No. Unfortunately we cannot accept applications over $10 million with the transition TIC. Please submit underwriting requirements by November 8, 2016 to help ensure the policy is mailed by December 28, 2016. 

Q: What happens at the end of 90 days

A: If Sun Life Financial has not approved the application, issued and put the policy in force, regardless of where it is in the process within 90 days from the date the Transition TIC application is signed, we'll close the file and send a letter to the client along with a refund cheque. There will be no exceptions to these rules.

 If the client wants to continue to pursue the insurance coverage a new application for a new product will be required.