Frequently Asked Questions

What is a life settlement?

A life settlement pertains to the sale of an unneeded, in-force life policy for an amount that is more than the policy’s cash surrender value but less than its death benefit. This is a valuable option for seniors who, for a variety of reasons no longer want or need to continue paying for a policy because its intended use may now be unnecessary or irrelevant. The surrender values paid by insurance companies are such that a purchase, in most cases by a life settlement provider (firm), can offer significantly more than the cash surrender value offered by the insurance carrier.
 

What is term insurance?

Term insurance can be defined as same as house or car insurance, if you make a claim (die) it pays. If you don’t, nothing back UNLESS you can transact a Life Settlement
 

What is whole life insurance?

Whole life insurance usually now referred to as Universal Life, can carry an investment component which accumulates on a tax sheltered basis. The accrued cash can be redeemed during ones lifetime either by way of interest bearing loan or surrender. Again that value is well below FMV in a secondary market.
 

What is cash surrender value?

Cash surrender value is another way of identifying the above referenced investment account value. In the “old days” when one “surrendered” ones policy to the insurance company as so many did, and still do, the cash value was the significantly reduced amount received compared to what may have been available as fair market value through a life settlement transaction.
 

What is key man insurance?

Usually a business-motivated life insurance purchase made by a partnership or corporation on the life of an executive or “key” person designed to provide the owner of the policy with immediate cash at the death of that “key” person.
 

What does viatical mean?

The general definition of viatical is: A policy that is sold for less than its face value but more than an insurance company would provide the insured, and with the insured having a life expectancy of less than three years. The three-year timeframe has changed but the essential meaning has not. It began with good intentions. The idea was rooted in the principle that if someone was dying of AIDS or cancer and they had money in a life insurance policy (their asset), payable at death, why not allow for some of the asset value to be available now, before death. It was usually needed to pay for health care.
 

What is fair market value?

As defined by Canada Revenue Agency: “Fair market value is the highest price expressed in terms of money or money’s worth, obtainable in an open and unrestricted market between knowledgeable, informed and prudent parties acting at arm’s length, neither party being under any compulsion to transact.”
 

What is the regulation that states life settlements are trafficking in life insurance?

From the Ontario Insurance Act, 115: “Trafficking in life insurance policies prohibited. 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. R.S.O. 1990, c. I.8, s. 115.”
 

What can we do?

In the appendix of the book is a list of contact information for MPPs/MLAs and MPs; for CARP; and for ADVOCIS, The Financial Advisors Association of Canada. And if you have a life insurance policy, then contact your broker and ask about life settlements.