It’s time to put the life back in life insurance.
Many people do not realize that their life insurance policy––an asset owned by them––could be worth substantially more than they think, before they die. It can potentially be worth much more than the “surrender value” the life insurance company would pay and something less than the full death benefit.
And if the money is needed now rather then after death, then policyholders need to understand what is called in the insurance industry, “life settlements.” In this book I explain life settlements and talk about what I believe is a great injustice in the Canadian life insurance industry and detrimental to millions of seniors. In the Canadian life insurance industry, life settlements are taboo and any hope of making them accessible to policyholders is locked up in the basement of industry bureaucracy, never to be talked about. What’s even more perplexing is the fact that life settlements are readily available in the United States and Europe where they are well-regulated and there is a fiduciary obligation to inform the public of this option. This is not the case in Canada and not to address this difference is egregious.
What’s wrong? Millions of Canadians with life insurance are missing out on an opportunity to receive significant cash value for their policies while they are alive––if they need it or choose to.
Canadians, Americans and Europeans have billions of dollars locked up in their insurance policies that they are not accessing, either because they don’t know they can or they are prevented from doing so by regulations. Neither reason is acceptable. In the US and Europe, the regulations have been changed, awareness levels are increasing and millions of dollars in life settlements are benefiting people everyday. But in many Canadian provinces … nothing. It is my hope that this book will begin to create a broader awareness of both the problem and the opportunity and lend a voice that advocates changing the outdated regulations that blatantly ignore the public good while benefiting only the insurance industry. As I like to say, “It’s time to put the life back in life insurance”.
This situation is contrary to the long-term needs of our aging population and the antithesis of a free market system.
I didn’t arrive at this point without spending many years, decades, experiencing firsthand, the absurdity of the situation. In this book I relate stories of how life settlements have changed people’s lives for the better and I also tell some disappointing tales of people who were prevented, by law, from selling their life insurance asset for much needed cash. This irrational, illogical and harmful situation must change because it is contrary to the long-term needs of our aging population and the antithesis of a free market system. It does not have to be this way.
What about the government?
If governments aren’t pressed, nothing happens.
The real oversight is that no one is making an issue of this problem and yet, it affects millions of Canadians, many of whom are in need of some economic “relief.” As stated earlier, there are many statistics that underline the urgent need for action on this issue. Equifax has reported that consumers age sixty-five and over are increasing their debt faster than any other age group, at a rate of 6.5%.21 And a RBC poll indicates that 40% of Canadians over the age of 50 have some form of debt and 22% entered retirement with debt.22 Also, many are deferring retirement. The need is tangible, growing and there is considerable value in the untapped asset of life insurance.
Unless somebody gives voice to those most affected, governments will continue to ignore the issue. If governments aren’t pressed, nothing happens. And there is silence on the insurance side by brokers, financial planners and life insurance companies. The government is a group of a few hundred individuals elected by many people who could benefit from a change in the archaic regulations currently in place so if elected officials even sensed there was a movement afoot, they would listen. It requires broad consumer awareness and participation, particularly among seniors, which, in turn, can bring change to the regulations. And then the life insurance companies will have to act.
Goliath is a bully
A March, 9, 2011, Globe and Mail article titled, Manulife unit battles U.S. life settlements’ industry, clearly illustrates the extent that life insurers are going to in the fight to prevent life settlements from benefiting policyholders. The article’s reporting fully supports the case that the life insurance industry, and Manulife in particular, are working to sabotage the life settlement industry for self-serving purposes. And today, three years later, nothing much has changed, especially in Canada.
I quote from the Globe and Mail article:
“Now Manulife’s U.S. subsidiary, John Hancock Mutual Life Insurance Co., is being sued in California district court for allegedly trying to stop customers from selling policies.”
The lawsuit launched by Coventry First LLC, a large life settlement firm that buys policies and often sells them to major institutional investors, alleges that ‘life insurance companies, such as Hancock, are seeking to destroy the [life settlement industry] because they want to reap the profit from collecting premiums without having to pay death benefits.
The suit accuses Hancock of using bullying tactics to retroactively terminate a policy that was sold. Manulife declined to comment on the allegations, which have not been proven.
Post-script: John Hancock lost the decision, was fined and criticized in the judge’s decision.
Also in the article:
“ … a recent New York Court of Appeals ruling said it was legal for individuals to take out life insurance policies on themselves for no other purpose than to immediately sell them…”
The New York ruling is a negative for life insurers, since an increase in policies that are sold to investors in the secondary market will reduce insurers’ profitability as the value in such policies is extracted and maximized by third-party investors,’ Moody’s said in a research note.”
Another key point:
“Industry experts say it’s extremely difficult to quantify the impact that the issue is having on insurers because of a lack of data.
The companies would never tell us how much they make off of lapses.”
Of course, they will never disclose that information but what we do know is that 80% of the policies lapse without insurers paying out any death benefit. Anyone can do the math. The life insurance companies’ “bullying tactics” reaffirm the magnitude of the threat that life settlements pose to their reaping of untold profits.
As I set out in Chapter Three, beginning in September 2010, Manulife employed similar tactics against me. And their arrogance and bullying are further exemplified by this excerpt from a letter sent to me by Lester Heldsinger, a Manulife Vice- President:
“Consequently you must no longer deal with any of the Company’s clients in respect of the Company’s products. In the circumstances you will not be offered a Servicing Contract. New representatives will be assigned to service your clients.”
In the same letter:
“The Company’s published business policies … prohibit the Company advisors from engaging in the described activities … regardless of licensing, registration or legislation.”
The arrogance is palpable in the complete disregard for “licensing, registration or legislation.” And the contradiction between referring to policy owners as “Company clients” and “your clients,” in the same mouthful, is an indication of their contradictory logic and irrational position. They are hiding behind a faux argument about whose client it is when the real issue is about whose asset it is. And all the arrogance and bullying will not change that.
Now, in 2014, it is time for Canadian policyholders to take up the fight against the arrogance, bullying and egregious regulations that are costing millions of seniors tens-of-millions of dollars.