But some policyholders sell their own policies, usually due to a personal cash flow crisis or an inability to continue paying premiums. Since life insurance can be considered a “investment,âSo to speak, selling might make sense. It’s probably not an easy decision to make, but selling a life insurance policy can be a relatively quick and easy way to take the financial pressure off when you need it.
Can you sell a life insurance policy in Canada?
The short answer is yes! âBut in most Canadian provinces there are laws that limit how and to whom you can sell your policy.
This has been a controversial issue for decades – in fact, New Brunswick and Nova Scotia recently amended their individual insurance laws to make the sale of life insurance policies more restrictive, while a private member’s bill currently making its way into the Ontario Legislature, aims to increase the freedoms associated with selling a personal life insurance policy. Saskatchewan, meanwhile, introduced new restrictions sales of life insurance policies in 2015, but has not yet enforced them.
Why all the fuss? Susan Murray, Vice President of Government Relations and Policy at the Canadian Association of Life and Health Insurance Companies (ACCAP), explains that what the majority of provincial governments have chosen to ban are “lifetime settlements” (also called “viatic settlements”). A life settlement occurs when a policyholder sells their life insurance policy to a third party, typically an individual or business that deals in insurance policy trafficking, in exchange for a one-time cash payment. In the event of the death of the policyholder, the third party receives the full value of the policy.
It may seem like a fair deal, but lifetime settlements often leave policyholders uninformed, especially vulnerable seniors who may be in dire need of cash, in danger of exploitation. “[A third-party] counselor might call and say, âYou have a policy of $ 100,000. I’ll give you 30%, so $ 30,000, and I’ll give you money tomorrow, âMurray explains. Not only could the policy be worth much more than that, but other serious issues could arise. âWhen they give money to the person, it’s taxable. If it is a senior who benefits from the GIS [the Guaranteed Income Supplement], they suddenly have declared taxable income of $ 30,000 and they are no longer eligible for GIS. There are many implications that are not explained to them when offered to them this kind of agreement.
You may be able to sell a policy âin trustâ to a family member in some provinces. For example, life settlements are currently only allowed in Quebec. But if you live in another province, there are still many options for selling your life insurance policy. The buyer has to be someone who wants to see you live a long life, however. Murray says, âIf I could no longer pay the premiums and my kids or another family member wanted to pay them for me, I could transfer my policy to them. If I couldn’t pay my premiums for a year but wanted to keep the policy, I could probably negotiate a deferral. If I wanted to surrender my policy, I could get the cash value. In some policies, you can take out a loan against the policy, borrowing up to a certain percentage of the value. Talk to your advisor and see what’s available for you.
What to know when buying someone else’s life insurance policy
The process of buying a life insurance policy that is owned by someone else is pretty much the same as buying one for yourself. Obviously, the person you want to buy the policy from must be prepared to sell it to you. But if you both agree, your first step is to talk to a financial advisor who can make the sale easier for you.