“Can you sell your life insurance policy in Canada?” is a question that has stirred considerable debate and scrutiny within the country.
Despite being a commonly practiced avenue for financial relief in the United States, the concept of cashing out a life insurance policy in Canada remains fraught with complexities, especially with laws that vary by province.
This comprehensive guide aims to provide an authoritative overview of the legality, concerns, and alternatives to selling your life insurance policy for cash in Canada.
What Is a Life Settlement?
A life settlement is a transaction where you can sell your life insurance policy to a third-party investor for an amount that’s higher than the policy’s cash surrender value but lower than its overall death benefit.
This arrangement provides the original policyholder with a lump sum of cash, while the new policy owner assumes the responsibility for ongoing premium payments. When the original policyholder passes away, the new owner receives the death benefit.
Is Selling a Life Insurance Policy Legal in Canada?
The answer to “Can you sell your life insurance policy in Canada?” isn’t straightforward because regulations vary among provinces.
As of the time of writing this article, selling your life insurance policy, or life settlements, is permitted in Saskatchewan and Quebec. Nova Scotia and New Brunswick had allowed this practice but enacted new regulations in 2020 to prohibit it. Attempts to make life settlements legal in Ontario have met significant resistance, predominantly from insurance companies.
The Concerns and Opposition
The Canadian Life and Health Insurance Association (CLHIA) stands as a prominent opponent to the legalization of life settlements. Their main concern is the potential for financial abuse, particularly among seniors. Insurance companies also resist the practice, as they profit from policy lapses, a revenue stream that life settlements could diminish.
Alternatives to Cashing Out Your Life Insurance Policy in Canada
If you find that you cannot sell your life insurance policy in Canada, there are alternative routes you can consider:
- Transfer of Policy: Transferring the ownership of your policy is legal as long as the new owner has an insurable interest in your life and the beneficiary remains unchanged.
- Policy Loans: Some insurers allow you to borrow against your policy’s cash surrender value, providing a way to gain liquidity.
- Compassionate Assistance: Certain providers may offer a portion of the death benefit as an early payment for those with terminal illnesses, to ease financial distress.
A Comparison with the United States
The concept of life settlements gained traction in the United States, notably during the AIDS epidemic of the 1980s. However, like in Canada, concerns about potential financial abuse have been raised.
The Bottom Line
The option to sell a life insurance policy in Canada is confined to a few provinces and is unlikely to expand widely given industry opposition.
Thus, planning your financial future through a mix of suitable insurance coverage and wise financial planning remains the prudent course of action.
For those pondering how to sell life insurance in Canada, it’s essential to grasp the current legal landscape and available alternatives. Consulting with a financial advisor is crucial to make decisions that are best tailored to your individual needs.
By being well-informed about the complexities tied to life settlements, you can make decisions that are both educated and in your best financial interest.