Selling Canadian Life Insurance: What You Need To Know

Selling a Canadian life insurance policy is a complicated process that depends on several factors, including the type of policy, the insurance company, and the province in which the policy was purchased. While it is possible to sell a life insurance policy in Canada, it is highly limited and only permitted in certain regions. For instance, while Quebec and Saskatchewan allow life settlements, Ontario does not. Additionally, some insurance companies, such as Sun Life Insurance, prohibit policyholders from selling their life insurance policies under any circumstances.

When selling a life insurance policy in Canada, it is known as a life settlement or viatical settlement, where the policyholder sells their coverage to a third-party buyer. The original policyholder typically receives a lump sum that is more than the cash surrender value but less than the death benefit amount. The new policyholder then becomes responsible for paying the monthly premiums and receives the full death benefit upon the original policyholder's death.

Before selling a life insurance policy in Canada, it is essential to consider various factors, such as the health of the policyholder, the province they live in, and the insurance company's policies. It is also recommended to seek the help of a reputable broker and understand the tax implications, as the sale of a life settlement is typically taxed.

Life settlements, or viatical settlements, allow you to sell your life insurance policy

The third party becomes the new owner of the policy and pays the monthly premiums. When the policyholder dies, the third party receives the full benefit of the policy.

A viatical settlement is a type of life settlement where the insured has a life expectancy of two years or less. This type of settlement is often sold by, or on behalf of, an insured person who is terminally or chronically ill.

The transaction may also be structured as a death benefit transaction, where policyholders receive cash payments, and their beneficiaries also receive a payment after the death of the insured. After the transaction, the policyholder is no longer obligated to pay premiums.

Life settlements are typically done by seniors who can no longer afford the ongoing premiums, no longer need or want the policy, or need money for other expenses.

While life settlements are legal in some Canadian provinces, such as Saskatchewan and Quebec, they are banned in others, including Nova Scotia and New Brunswick. In Ontario, there have been attempts to legalise life settlements, but these have been met with resistance from the insurance industry.

If you're considering selling your life insurance policy, it's important to understand the regulations in your province and the potential tax implications of the transaction.

Selling a life insurance policy is legal in some Canadian provinces, but not all

The Canadian Life and Health Insurance Association (CLHIA) has lobbied against the sale of life insurance policies, arguing that it exposes senior policyholders to financial abuse. However, supporters of allowing the sale of life insurance policies argue that it provides an option for those who need immediate financial assistance.

If you're considering selling your life insurance policy, it's important to note that not all life insurance companies in Canada may allow policyholders to do so. For example, Sun Life Insurance does not permit life settlements, regardless of the province. Additionally, you may need to switch to a permanent life insurance policy, as term life insurance policies can be harder to sell due to the lack of guarantee that the beneficiary will receive the death benefit.

Before selling your life insurance policy, it's recommended to consider various factors, such as your health, the province you live in, and the terms of your policy. It's also crucial to understand the tax implications, as sales on life settlements are typically taxed.

You can sell your life insurance policy to virtually anyone, given that both parties have written consent

Yes, you can sell your Canadian life insurance policy. However, there are several conditions to be aware of.

Firstly, it depends on the type of policy you hold. Most commonly, people in Canada hold term life insurance policies, which are legal contracts between the insured person and the insurer. These policies are usually harder to sell as there is no guarantee that the beneficiary will receive the death benefit—the insured person must pass away during the policy term for the beneficiary to receive the payout. On the other hand, permanent life insurance policies are much easier to sell as they guarantee a payout. If you hold a term life insurance policy, you will likely need to convert it into a permanent policy before you can sell it.

Secondly, selling life insurance policies is only legal in certain Canadian provinces. For example, Quebec and Saskatchewan allow life settlements, but Ontario does not. In other provinces, it is a grey area.

Thirdly, not all insurance companies allow policyholders to sell their life insurance. For example, Sun Life Insurance does not permit life settlements under any circumstances.

Finally, you will need to find a buyer for your policy. This can be difficult, as you cannot simply list your policy online. You may wish to hire a broker to help you find a buyer, but this will cost you a commission.

If you decide to sell your life insurance policy, there are several steps you need to take. You must switch to permanent life insurance if you are currently on a term policy. You also need to understand the tax implications—while death benefits on life insurance policies are not taxed, sales on life settlements are. You will then need to find a broker and undergo the application process, providing documentation such as medical records. Following this, you will need to wait for an appraisal and then receive an offer, which you can accept or decline.

If you are unable to sell your life insurance policy, there are alternative options. You can let the policy lapse, transfer it to someone else, or negotiate lower rates with your insurance company.

If you have a term life insurance policy, you will likely have to convert it into a permanent policy before you can sell it

Selling a term life insurance policy is generally more difficult than selling a permanent life insurance policy. This is because there is no guarantee that the beneficiary will receive the death benefit. The insurer only issues the payout when the insured passes away during the policy term.

However, you may be able to sell your term life insurance policy in the following two scenarios:

• You have converted your term life plan into a permanent life policy — whole life insurance or universal life insurance.
• You have a terminal illness and are not expected to live long.

If you want to sell your term life policy, you will probably need to convert it into permanent life insurance first. The conversion is only possible if your plan has the conversion rider and the rider is still valid. Many term life policies include the term conversion provision by default, but you can also add it for a small additional fee.

Keep in mind that the conversion rider comes with an expiry date, and your new premium rate will be much higher, although you will not have to prove insurability again.

If your term life plan does not include the conversion provision or it has expired, then you will likely be unable to sell it. The only exception is if you have a shortened life expectancy due to a terminal illness. In that case, you may still qualify for a life settlement.

Steps to Convert a Term Life Insurance Policy to a Permanent Life Insurance Policy

Converting a term life policy to a permanent policy is much simpler than applying for a new policy. First, check the language of your policy to see if conversion is an option (it is on most policies).

Next, check the term conversion period—the time frame during which you can convert. Some companies will allow policyholders to convert at any point during the term of their policy. But many will limit the conversion period. For example, the conversion period on a 20-year term policy might be limited to the first 10 years the policy is in force.

Then contact your insurance agent or company to ask to convert your policy. You won’t have to take a life insurance medical exam or go through the underwriting process. In fact, the underwriting class you were assigned when you bought your term policy (standard, preferred or super preferred) won’t change even if your health has changed.

You’ll simply fill out a questionnaire, and your new permanent policy will be issued within a few days.

Reasons to Convert a Term Life Insurance Policy to a Permanent Life Insurance Policy

Converting a term life insurance policy to a permanent policy allows you to extend your coverage without going through the underwriting process. This can be a valuable option if your health changes for the worse. If you wanted to get a new term life policy to extend your coverage, you would have to pay astronomical rates or could even be uninsurable. But if you convert, your current health won’t affect the premium on a permanent policy or your insurability.

You might have wanted to buy a permanent policy from the get-go but couldn’t afford the higher premium. If you’re making more money now, it can make sense to convert if the higher premium on a permanent policy fits within your budget.

One of the benefits of a permanent life insurance policy is that part of your premium goes toward the cost of insurance and part of it goes toward building cash value. Some people want cash value life insurance so they can access the cash during retirement (or for other reasons) tax-free. It shouldn’t be a substitute for saving for retirement in an account such as a 401(k), but it can be part of a financial plan.

You might not want to saddle your children with paying for your funeral. So converting enough of a term policy to a permanent policy to cover final expenses could make sense.

Selling a life insurance policy may make sense if you can no longer afford to pay the premiums

Firstly, it is important to note that not all provinces or life insurance companies in Canada allow policyholders to sell their personal life insurance policies. For example, while Quebec and Saskatchewan allow life settlements, Ontario does not. Additionally, some life insurance companies, such as Sun Life Insurance, do not permit life settlements, regardless of the province. Therefore, it is crucial to check the regulations in your province and the policies of your insurance company before proceeding.

Secondly, selling a term life insurance policy may be more challenging than selling a permanent life insurance policy. This is because there is no guarantee that the beneficiary will receive the death benefit with a term life insurance policy. As a result, you may need to convert your term life plan into a permanent life policy before selling it. However, this conversion is only possible if your plan includes a conversion rider, and even then, your new premium rate will be significantly higher.

Thirdly, your age and health will impact the offers you receive for your life insurance policy. Most buyers tend to purchase policies from individuals aged 65 or older, and younger, healthier people may receive lower offers or not qualify at all.

Finally, it is essential to be aware of the potential tax implications and other consequences of selling your life insurance policy. For instance, the money gained from the sale may be subject to taxes, and it could also affect your eligibility for certain financial assistance programs. Additionally, your beneficiaries will no longer receive the death benefit associated with the policy.

In conclusion, while selling a life insurance policy may provide a financial solution if you can no longer afford the premiums, it is a complex decision that requires careful consideration of the regulations, the type of policy you hold, your personal circumstances, and the potential risks and benefits involved.

Frequently asked questions