American seniors with an in-force life insurance policy have, for a century now, had the option to sell it on the secondary market. Whether they need a lump sum, no longer wish to pay insurance premiums or just as part of financial and retirement planning, US seniors can look to the capital markets for an alternative option. There, its considered property, with roots dating back to 1911 and the Grigsby vs Russell supreme court decision.
Seniors in most other developed economies don’t have that option, but it’s not as if other countries haven’t tried. In Canada, the topic of ‘life settlements’ comes up every so often. Most recently, in 2021, lawmakers in Ontario tried to get Bill 219 through, which would have provided a regulated secondary market for life insurance in Canada’s most populous province, but it failed to get through. It’s the latest setback for those who desire to see such a market in the country; Nova Scotia and New Brunswick, which permitted the market previously, banned it three years ago, in March 2020, leaving only Quebec and Saskatchewan as the two remaining jurisdictions that offer this flexibility.
The lack of a decision is frustrating to investors for many reasons, but one nuance of the Canadian life insurance market would be very appealing to potential investors.
“In Canada, insurance companies can’t increase the Cost of Insurance component of a life insurance policy,” said Daniel Kahan, CEO of Viaticus Canada in Toronto. “There’s been lots of litigation around this in the US with regards to some UL COI policies. We have level premium Term to 100 policy in Canada, guaranteed for life, and in some case pays out at age 100 instead of going paid-up. That’s something hugely attractive for a potential investor.”
It’s not only investors that would benefit from a regulated market in Canada. The life settlement market in the US consistently promotes what it considers to be the main benefit to consumers of their entire market – that policyowners receive more money from an investor than they would if they simply surrender their policy back to the insurance company (or let it lapse). Many more Canadians would enjoy a similar benefit if there was a country-wide market.
Activity in Ontario gets the most attention, because of its size and influence in politics and economics. However, Section 115 of the province’s Insurance Act states:
“Any person, other than an insurer or its duly authorized agent, who advertises or holds himself, herself or itself out as a purchaser of life insurance policies or of benefits thereunder, or who trafficks or trades in life insurance policies for the purpose of procuring the sale, surrender, transfer, assignment, pledge or hypothecation thereof to himself, herself or itself or any other person, is guilty of an offence.”
That doesn’t leave many options for Ontario residents to access liquidity in their later years if they so need. One option open to them, similar to many other countries, is the equity release / reverse mortgage market. Kahan echoes the frustrations of many that this option only exists for home owners, and whilst it has similarities to the US life settlement market – in that an external party is involved in the space – renters don’t have this option.
“Nobody has ever questioned the right of Ontario seniors to downsize and sell their homes to whomever gives them the best price – or, if they are asset rich but income or cash poor, to stay in their homes and take out a reverse mortgage. But when it comes to disposing of their permanent life policies, they can only ‘sell’ their life policy back to their own life insurer for its cash surrender value or borrow against its CSV from a bank,” he said.
When will new legislation come across lawmaker’s desks to support a secondary life insurance market in Canada and most importantly, when will it pass? For proponents of the industry in Canada, these are the questions of the time.
“It’s just very unknown right now,” said Kahan. “What needs to happen is that we need a dynamic industry lobby group and a way to promote this to Canadian consumers so that both sides are pushing lawmakers to permit this market. There’s no reason that Canada shouldn’t have a market similar to the US – we just need to continue to educate politicians and consumers about the benefits of a secondary life insurance market, not only to consumers but also to the life insurers and their agents as demonstrated by the Wharton Study.”
