Proposed bill seeks easier access to life-insurance funds for Ontario seniors

by Leo Almazora20 Oct 2017
A new legislative proposal has been advanced to let seniors in Ontario get much-needed money by tapping an asset they own, but typically cannot use: their life insurance policy.

This week, MPP Michael Colle introduced Bill 162. It seeks to amend Section 115 of the Ontario Insurance Act, which prevents anyone other than an insurer or a duly authorized agent from selling a life insurance policy. If passed, the bill would allow an open and free market where aging life-insurance holders could sell their policies as life insurance settlements, according to a think piece published by the Province.

“A life settlement pertains to the sale of an unneeded, in-force life insurance policy for an amount that is more than the policy’s cash surrender value but less that its death benefit,” said Leonard H. Goodman, founder and chair of the Life Insurance Settlement Association of Canada (LISAC) and author of the piece.

“Life settlements are an excellent option for millions of seniors who need or prefer cash under their current circumstances rather than the eventual payment of the full death benefit,” Goodman said. He claimed to personally know people whose $1.7-million term policy fetched $500,000 as a life settlement, and others who received $100,000 for a $400,000 policy. Even policies with $100,000 terms have been sold for more than $30,000 or $40,000.

Settlements are also a good option because they typically fetch amounts many times greater than the cash surrender value. Citing a study of 9,002 policies by the London School of Business, Goodman said that a life settlement’s value produced more than four times the cash surrender value that insurance companies offer.

Unwanted or no-longer-affordable policies are sold by millions of seniors around the world; US seniors are getting more than $7 million daily from life settlements, and will get about $3 billion yearly over the next decade. But according to Goodman, the Ontario Insurance Act has kept seniors from using life settlements for over 80 years.

“It is estimated that 80% of life insurance policies lapse or are cancelled, which means insurance companies never pay the full amount, thereby, saving billions every year,” he said. “This is money that stays in their pockets rather than going into seniors’ pockets, where it rightfully belongs.”

Right now, Goodman said, there are more than 2 million seniors in Ontario, which represents 15.6% of the population; in a decade, that percentage will increase to 23%. “This is a significant segment of the population, many of whom will need additional financial resources in the future, and life settlements can play an important and viable role in maximizing the value of an asset that more than half of them own,” he said.

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  • by Bruce w 2017-10-20 1:11:03 PM

    Goodman fails to mention the insurance is priced with lapses so it’s not money rightfully in the pockets of seniors. And $500000 for a 1700000 policy? Are you kidding me. Goodman and his ilk are glad to pay the premium to eventually collect that

  • by Georgetown Guy 2017-10-20 5:07:04 PM

    I agree with Bruce w. > Policy premiums are kept low in part because of lapsed policy rates (already factored into premiums). People allow a policy to lapse because they can't be bothered to complete official paperwork to terminate a policy that's no longer required (no further need) -or- because they failed to manage their finances to properly address funding of level rates or increasing rates (the affordability). But these are choices a consumer makes (not imposed on them by the insurance contract. My concern would be for seniors who may be improperly influenced to sell ownership in a policy without a proper understanding of the impact this may have on them (they obviously took out a policy to meet a need). One may also need to consider how the legal exchange of ownership under this selling arrangement would satisfy compliance (one hopes that a senior wouldn’t have their arm twisted to sell their policy to a mobster, only to suffer a very premature death shortly after the sale).

  • by daniel kahan 2017-10-22 5:47:32 PM

    As an actuary I am amazed with the reader's argument that because Term to 100 policies are "lapse supported" a senior who has had the "misfortune" of living too long and has paid more in premiums than the death benefit, should be forced to carry on paying premiums until he dies, rather than being able to sell his policy and recover part of his premium outlay from a third party investor. Obviously the life insurers would like him to walk away from the policy with nothing and make some extra profits for their shareholders (most of whom probably don't live in Canada).If they were still Mutuals, and owned by their Policyholders, perhaps they would be showing more corporate social responsibility to those seniors who did not die prematurely !!