Can I Sell My Life Insurance Policy In Canada?

Yes, you can sell your policy in Canada1


Budget and Invest sometimes tackles difficult financial questions.  One which has come up consistently is: Can I sell my life insurance in Canada?  Read on for the answer to this question.

What’s a life settlement?

When a person with insurance sells the policy they have, this is referred to as a life settlement, also sometimes known as a viatical settlement. The sale price is typically more than the policy’s cash surrender value, but also less than the death benefit.

When you do this, you get your lump sum immediately, though at the expense of your policy. Then, the new policyholder will pay the monthly premiums, and will also receive the full benefit upon your death.

So, can you sell your life insurance in Canada?

Yes, you can sell your life insurance policy in this way in Canada. Selling life insurance in Canada is complicated, however, because it can only be done in certain areas. What’s more is, even in the areas where selling your life insurance is allowed, it’s still only allowed by certain companies under certain circumstances.

For example, the life insurance company Sunlife Insurance never allows a life settlement, regardless of where in Canada you are.

Where can you sell your life insurance in Canada?

In Canada, a life insurance settlement is legal in the provinces of Saskatchewan, Nova Scotia, New Brunswick and Quebec only. In recent years, there have been several attempts to make selling life insurance policies legal in Ontario, too. But, since this means fewer profits for insurance companies, these attempts have been totally blocked.

What are the problems with selling life insurance?

As we just touched upon, there was recently an attempt to amend Ontario’s insurance act, in 2017. All was going swimmingly until the Canadian Life and Health Insurance Association (also known as the CLHIA) began to protest voraciously against the attempt. This was partially because life settlements would mean less profits. But, the CLHIA also argued that giving Ontarians the ability to sell their life insurance opens seniors with policies up to financial abuse.

Still, people who support viatical settlement say that it gives people in dire financial circumstances who need immediate financial assistance, a good option. After all, a viatical settlement pays you far more than a cash surrender value, and it’s a better idea than just letting your policy lapse. From your insurance company’s point of view, though, a policy lapse is a good source of profit.

Are there alternatives to selling your life insurance?

So, unfortunately, for one reason or another, selling your life insurance simply isn’t legal in many parts of Canada, and is even still frowned upon by some insurance companies in provinces where it is allowed! If you live in one of these provinces though, don’t despair, because there are a few equally lucrative alternative options to life settlements.

How do you transfer life insurance in Canada?

One of these alternatives to a life settlement is the option of transferring your life insurance policy. Instead of selling your policy, simply change its beneficiary!

However, do be aware that the new policy owner has to have insurable interest in the life of the person insured. To have this, the new policy owner must be likely to suffer a financial loss when the person insured passes away. Transferring your life insurance policy is covered under the Ontario Insurance Act.

So, if you have someone in your life who has insurable interest, this person will be allowed to take over your policy, pay your premiums, and become your policy’s beneficiary.

People typically transfer their life insurance policy to someone like a child or grandchild.

Since there may be tax implications arising from a life settlement transaction, make sure that you get in touch with a tax lawyer.

Then there’s the Personal Health Spending Account, or PHSP. You’re probably well aware that most benefits programs for employees in Canada have certain restrictions and limits on their usage. And, if you don’t have access to a plan like this, of course, you must pay for health care using your own money.

This is what the PHSP is great for. The PHSP is a government benefit that yields a good health care strategy to people who are owners of incorporated businesses or are self-employed. If you are someone who claims expenses on your income tax, you may not be able to take full advantage of the Personal Health Spending Account. However, if you are considering getting life insurance for healthcare, the Personal Health Spending Plan can make a great alternative. Check out to find out more about this.

What about compassionate assistance?

Many insurance companies also offer the option for a compassionate payment after a terminal diagnosis. After the diagnosis, your insurer will pay a portion of your death benefit before you pass away.

Generally, a compassionate assistance payment warrants a person to have a diagnosis of less than two years to live. But, the payment can help you out in whatever way you like — a gift to a caregiver, a flight around the world, or even hotel rooms for family to be nearby.

Compassionate payments are not taxed. Do be aware that a compassionate payment will reduce the size of your death benefit, however, since it’s an early payment of the benefit. You also must still pay your monthly premiums, too.

What are policy loans?

Rather than having to deal with life settlements, the life insurance industry prefers to make it easy to access a portion of your death benefit before the event of your death. This is done with a policy loan.

A policy loan lets you borrow money from your insurer by using the cash surrender value of your policy as a form of collateral. The interest that then accrues can be paid either while you are alive, or added to the cost of the loan, so that when you die, the outstanding balance will get deducted from your death benefit payout.

This all sounds simple enough, right? But there are a couple of other things you should know about policy loans. With this type of loan, you are only able to borrow an amount up to the value of your cash surrender value. Sometimes you are permitted to borrow only a certain percentage of your value, like 80%.

On top of this, you still have to pay your premiums, meaning you still run the risk of your policy lapsing.

Plus, despite the popularity of term life policies, you can only take out a policy loan on a whole life insurance policy, since term life insurance policies have no cash surrender value for you to borrow against.

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Photo credit, Pictures Of Money, Via Flickr.


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Best Type of Insurance for Seniors

A life insurance company wants to minimize their financial risk as much as possible. Younger applicants are healthier than middle-aged people or senior citizens. They will live longer than older people and have decades of life to pay insurance premiums. Young applicants also get more worth out of a life insurance policy in terms of cash value, benefits,  and coverage customization.

If you are over the age of 65, this doesn’t mean that you can’t get life insurance. It just means that it will be more difficult and expensive to acquire. The older that you are, then the closer that you are to death, statistically speaking. Men usually live until 69, while most women live to be 71. Of course, people live longer nowadays. Yet, the longer that you live the more prone you are to the illnesses, diseases, mental impairment, and physical degradation that comes with advanced aging.

A life insurance company is more likely to pay out beneficiary payments for a senior citizen applicant much sooner than a younger applicant. However, there are many life insurance products and alternatives that senior citizen can apply for. They may be costly and/or offer diminished benefits packages.

Final Expense Insurance

One of the cheapest ways to have some sort of life insurance is to have a final expense insurance policy.  These policies can provide a policy payout from $1,000 up to $50,000.  However, most people get enough to cover their burial and minimal expenses.  There are many top life insurance providers to choose from for your final expense insurance needs.  Mutual of Omaha burial insurance is a leader in this type of policy.

What is great about final expense insurance is the monthly premiums are inexpensive. Generally, less than $50 per month and there is no medical exam on most of these policies. This gives a family a sense of security and takes the worry and stress away from the family having to have the burden of paying the bills.

Source: Final Expense Insurance Quotes | Funeral Insurance for Seniors

Term Life Insurance

This is a life insurance product that provides coverage within a predetermined term. Term life insurance is usually offered in increasing increments of 5-year terms. You can buy a term life insurance policy for 5-years, 15-years, 20-years, and so on. If you bought a policy for 10-years, then the coverage would only be active within that 10-year window of time. Term life insurance policies are affordable and offer the kinds of benefits that you will find in traditional life insurance policies.

The amount of premium that you pay should not increase for the life of the policy. However, term life insurance’s greatest benefit can also be its drawback. If you choose a 10-year window of coverage, for example, then you must die sometime within that predetermined 10-year coverage window for your beneficiaries to receive benefits. If you were to die 10 years and one day after buying the policy, your beneficiaries get nothing.

Outliving predetermined term life coverage windows means that you must buy another policy all over again. You may be able to extend term coverage or convert it, but that will cost more. Term life insurance coverage is affordable but is also a gamble.

Source: Why Term Life Insurance Is Better Than Whole Life Insurance

Universal Life Insurance

This is a form of life insurance coverage is risky, expensive, and may depreciate in cash value in unpredictable fashion. If you have money to spare and are financially savvy when it comes to investing, then it may be right for you. Universal life insurance offers lifelong coverage. It also accumulates cash value over time. However, what you pay in premium may fluctuate over time. The cash value inherent in universal life insurance coverage is pegged to stock market performance.

The cash value of your policy is based on and tied to investments made on behalf of the carrier. If the investments tied to the policy underperform, then you might have to pay a higher premium to keep it from being canceled. You can borrow against the cash value of the policy. If you die before repaying, the loan amount will be deducted from beneficiary payments. If the investments tied to the policy perform well, then the policy gains accordingly in value.

Source: The Basics of Universal Life Insurance Explained – The Balance

Talk To a Professional

If you are 65 and over, don’t apply for life insurance coverage on a whim. Talk to a financial advisor, insurance agent, broker or search on an insurance comparison site like Policy Scout. Consider your options. You can get life insurance coverage. It just might not be entirely on your terms.