Recently, i handed a us$600,000 cheque to an American client as a life settlement for his $2-million, term-to-100 life insurance policy. This transaction took place after my client had advised me that he no longer needed the coverage and wanted to eliminate the cost of premiums by cancelling the policy. I told him there was a better alternative than cancellation: a life settlement. Like most people, my client was unfamiliar with life settlements. And yet, he, and the public, has a right to know about them.

A life settlement pertains to the sale of an in-force life policy for an amount that is more than the policy’s cash surrender value but less than the death benefit. The settlement is realized through the sale of the policy in an open and free market system. In the U.S. and Europe, the life settlement industry is well regulated and growing exponentially. In the U.S., it is a US$140-billion industry and pays out more the US$7 million a day to policyholders. Unfortunately, in Canada, life settlements are not available to most people, which is an injustice to both the public and financial advisors committed to serving the best interests of their clients.

In the regulated U.S. industry, advisors have a fiduciary responsibility to inform clients about life settlements; but, in Canada, the majority of advisors are not well informed about this pragmatic and financially beneficial option. In fact, even if they were informed, most are prevented from serving their clients’ interests because of obsolete legislation, which the life insurance companies “leverage” by threatening to terminate advisors’ contracts. I know; it happened to me.

In six provinces, there are regulations that prohibit life settlements from benefiting our aging population. And in the other four provinces (Quebec, Nova Scotia, New Brunswick, Saskatchewan), there are no regulations for or against life settlements. The Ontario Insurance Act includes an 80-year-old regulation that refers to this practice as “trafficking in life insurance.” It is as absurd as it is archaic.

Obstructing access to life settlements does not serve the interests of the public, governments, advisors or advocacy groups such as the Canadian Association of Retired People (CARP) and the Financial Advisors Association of Canada (a.k.a. Advocis). This policy serves only the interests of life insurance companies because when a policy is cancelled or lapses, they never have to pay the death benefit. And it is estimated that 80% of policies are cancelled or lapse. This is an enormous financial incentive for insurance companies to oppose life settlements, which they do, both openly and covertly. (Recently, Bill 177 was introduced in Saskatchewan at the behest of the Canadian Life and Health Insurance Association Inc., a bill that mirrors the egregious Ontario Section 115.) Life insurers create confusion in the market by co-mingling information about life settlements with pejoratives such as “viaticals,” “STOLI” (stranger originated life insurance) and loans against life policies. These are very different from life settlements, and to imply they are similar is a serious disservice to Canadians and the advisors who serve them.

Many Canadian seniors are struggling financially, and every effort must be made to improve their retirement years. That is one reason why Ontario Premier Kathleen Wynne proposed establishing the Ontario Retirement Pension Plan. There are many legitimate reasons for groups such as CARP and Advocis to advocate actively for life settlements. Advocis states on its website that its members are “committed to putting their client interests first.” And yet, if its members are not properly informed about life settlements, their ability to provide full value to clients is undermined.

CARP’s website states: “Our mandate is to promote and protect the interests, rights and quality of life for Canadians as we age.” Thus, CARP should be advocating for Canadians’ “rights” to access this valuable asset.

One of the best ways to inform policyholders is through their advisors. But if advisors are prevented from serving their customers’ best interests because of egregious legislation and manipulated propaganda, then everyone loses – except insurers.

Leonard Goodman is president of First Financial Group in Toronto.

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