The Canadian Life and Health Insurance Association (CLHIA) has applauded the government of Nova Scotia for moving to prohibit trafficking in life insurance policies within the province.
The change was ratified on March 10 when Bill 238, which amended the province’s insurance act, received royal assent. Aside from clarified the definition of “premium” for life insurance, the bill also effectively prohibits third parties from purchasing life insurance policies.
“Nova Scotia's legislation will protect vulnerable consumers while ensuring that life insurance continues to fulfil its purpose of providing financial protection to individuals and their loved ones,” CLHIA President and CEO Stephen Frank said in a statement. “Our industry has been vocal in our concerns that life settlements pose a very real and significant risk for fraud and abuses of consumers.”
CLHIA said that life insurance trafficking, or “life settlements,” open policy holders up to exploitation. In particular, they warned that the practice leads to vulnerable persons, often seniors, giving up their life insurance policies to third parties offering cash payments that are worth less than the policy’s face value.
The industry group added that in some U.S. states that allow life settlements, there have been instances of inadequate contract disclosure, misleading sales practices, and other abuses aimed at vulnerable policy holders.
Aside from being the eighth province to ban life insurance settlements, Nova Scotia is the second province after New Brunswick to offer a clear definition of premiums for life insurance. Legislation to clarify the definition has also been introduced in Alberta.
“It’s becoming increasingly clear that legislators across the country are committed to protecting Canada’s longstanding public policy, which differentiates insurance contracts from deposit-taking accounts,” Frank said.