Many countries around the world allow seniors to resell their unused, in-force insurance policies in an open and free secondary market, according to a piece published by the Toronto Sun. Through a practice called life settlement, such policies can be sold for an amount that’s more than their cash surrender value, but less than their death benefit.
“In the United States alone, more than $7 million a day is paid to people through life settlements,” said Leonard Goodman, founder and chair of the Life Insurance Settlement Association of Canada (LISAC) and author of the think piece.
However, Goodman said, regulations in six out of ten provinces prevent a well-regulated secondary market where life insurance policies can be bought and sold. “For decades, Canadian life insurers have lobbied against changing these regulations, and are fighting to include regulations in the other four provinces,” he said.
Goodman claimed that over 80% of life insurance policies are either cancelled or expire without a claim ever being made, which means many seniors own assets they ultimately do not benefit from. Allowing life settlements would provide a much-needed source of retirement funding for seniors, and it would let more people benefit from otherwise unused policies.
“The biggest problem is that seniors are not aware of this unfair and egregious practice,” he said. “Most legislators do not know much about life settlements. And Canadian insurance brokers and financial planners either don’t know or cannot properly inform their clients.”
According to Goodman, most insurance brokers rely on insurance companies and face a risk of getting their license terminated by an insurance provider, so they don’t recommend life settlements to senior clients.
“[I]f we can get provincial governments to recognize the rights of seniors and change the regulations, it will significantly help millions of seniors who are struggling financially in retirement,” he said, calling for life settlements to be made into “a ballot box issue in the next election.”