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I am currently reading Moral Minds, the nature of right and wrong by Marc D. Hauser and I am trying to decide if I am blessed or cursed by this moral mind of mine. What does this have to do with life settlements? Well in reading this book, it has allowed me to understand how my moral compass has allowed me to make legal and fiscal interpretations on new life products, features and concepts without being wrong once with any of my interpretations during all of my career. This is surprising because quite often my interpretations were at the antipodes of those who are considered the experts; the ones with the CA, LLB, MBA or FSA. You know the very intelligent and highly educated crowd. After all, I was just a CLU, CFP, FLMI and I am a guy who climbed the corporate ladder from starting at the bottom in the trenches. I did not come from one of the big universities.

The insurance industry wants you to view your life insurance as an investment instead of as an asset. Why? The reason is simple. Viewing life insurance as an investment limits your perception of the value of life insurance to its cash value which the insurance company controls. Viewing life insurance as an asset is viewing the value of life insurance in relation to all benefits provided by life insurance in relation to their costs. When viewing life insurance as an asset you will have to value the pricing used by the insurer while allocating a value to the hidden reserves of the policy; components that insurers want to keep hidden as a source of profit...

On Financial Planning

Richard Proteau

Before I discuss my position on Life Settlements, let me give you some examples of how I used morality in marketing and product development of life insurance. At the time, I was working at Maritime life and we wanted to offer a disability benefit in our Universal Life that would allow the owner to access the cash value of the policy on a tax-free basis in the event of total disability. There were a lot of discussions regarding this product feature since the term disability benefit was not defined in the Income Tax Act. Those against would state that since there was no element of risk associated with the cash value, Revenue Canada would consider this a taxable benefit. Those for the benefit pointed that nowhere in the Income Tax Act there is a reference to an element of risk in the definition of a disability or death benefit. That reference to risk was a phobia developed by Revenue Canada which went against the basic principle of life insurance and if applied would render most of all life policies taxable by age 100, since there is no more element of risk associated with these policies at that age.

Between these two camps, I stood alone asking myself whether this disability benefit was right or wrong. This illustrates how the experts or the decision makers only consider whether a decision is technically feasible and permissible without ever considering if it is morally feasible and permissible. We do need more morality in the financial industry.

The answer to whether this disability benefit was right or wrong could be found between reason and emotion. If we believe Descartes, reason defines morality and from this rationality we can make 2 forms of judgments as stated by Hauser:

‘we might deliver either a utilitarian judgment based on whether the outcome maximizes the greatest good or a deontological judgment based on the idea that every morally relevant action is either right or wrong, independent of its consequences.’

But I believe reason has little to do with sales. Emotions are actions and reactions while reason is just good wishful thinking (and it won't help you close the deal). As stated by Hauser:

“Humean creature,” equipped with an innate moral sense that provides the engine for reasoned judgments without conscious reasoning. Emotions ignite moral judgments. Reason follows in the wake of this dynamic. Our moral sense hands us emotional responses that motivate action, enabling judgments of right or wrong, permissible or forbidden.”

Why is Fair Market Value important to life settlements?

If society was to judge this disability benefit as either right or wrong, it would be from this emotional point of view. Let me offer you an example. A man suffers an accident and he is immobilized in bed unable to perform several activities of daily living. While some of the cost of his rehabilitation will be covered by society, he will still have to pay for some of the expenses out of pocket. The success of his rehabilitation has been proven to be linked to his financial well being. Now imagine this man lying in bed having lost so must. Is it right or wrong for him to get his cash value tax-free to pay for these expenses? Now if you have any empathy as Hauser said:

Empathy is “the spark of human concern for others, the glue that makes social life possible”

then you would be able to put yourself into this man’s bed and you would state that this benefit is right because he is not doing this to cheat the tax system. You would sympathize with his situation. You would also then use reason to pass a utilitarian judgment stating society has a stake in the successful rehabilitation of people who are disabled. There is a social cost with disability and any strategies that minimize this cost are good for society and therefore this benefit is right. When you know something is right, it makes the technical assessment easy to do.

This is why I had no problems in defending my position that the disability benefit was morally right versus those who believe it was technically wrong. I was proven right with Revenue Canada later endorsing my point of view. This is the point that we must never forget: life insurance is a very moral and utilitarian product born out of our emotional engagement towards those we cherish. It is a highly moral product.

I used this technique again and again and it has always proven successful. When the Department of Finance produced a report on many new insurance features and strategies in 1998; a report that was so technically backward; I successfully fought this report using morality. I wrote different texts for Marketing Option and his editor Steve Carlson destroying the positions advanced by this department in this report to such an extent that a senior government official of the Department of Finance communicated with CHLIA requesting their intervention to silence my criticisms. Morality is indeed a powerful weapon. In this report, the Department of Finance was objecting against many product strategies targeting business owners seeing these strategies as a way to cheat taxes while I argued based on a public report that the greatest problem faced by businesses was transition and business continuity. I argued that efficiency is not cheating. As a society do we want businesses to continue operating when they transition to another generation? As a society do we want companies to continue employing people? What is wrong with strategies that minimize the cost of insurance allowing the business to purchase the right amount of insurance while at the same time maximizing other advantages offered by these policies such as accumulating funds for the retirement of the current owner or for the purchase of their shares allowing the business to survive through generational transition?

When I started to work for Manulife. I quickly determined that increasing cost of insurance would have a negative impact on sales of my region. As a way to offset this, I believed we had to start bundling benefits. I tried to convince the product manager to put a high priority on creating term insurance that offered life, disability and critical illness coverage into one product. Every meeting I would try to push this as a priority but it was going nowhere. Finally I cornered the product manager in Montreal and asked her what was holding this initiative. Her response was incredible. One of the technical experts at Manulife had decided that combining coverage such as disability and critical illness undefined in the Income Tax Act under one product would taint the life insurance and it could be considered as not being life insurance. My reaction was immediate. Who could believe it was wrong to create an affordable life insurance product for a population that is already under insured; a problem that could only increase with rising cost of insurance? Our society has a tremendous vested interest in life insurance measured in hundreds of years of history. We want people to have the right amount of insurance because we understand that when there is not enough, families and businesses get destroyed. It took five years for Manulife to come to this point of view and they are now offering this product.

I also used morality in sales. It is morality that allowed me to close a case for one of my agent involving hundreds of millions of dollar of insurance. The agent had knocked on every insurance company’s door and each time he was faced with a refusal on the basis that you could not put that amount of insurance on children. I was the agent’s last chance and I decided to present the case to the reinsurers not on a technical basis but from a point of view of what was right or wrong and this is how I wrote my underwriting letter for the case. I agreed that yes it is wrong for a person like me to insure my children for hundreds of millions of dollars. But this did not apply to this case as we could see that the family involved had implemented 3 estate freezes for 3 generations with each generation insured for their taxable liability associated with the estate freeze. So would a family having planned to such an extent in order to defer taxes plan to kill their children to pay the taxes they owed to the government? The answer is quite obvious. There was indeed a need for this insurance independent of the age of the insured and it was therefore right to insure that risk. As soon as I convinced all the stakeholders that this was right suddenly everybody was on board and the case was done.

My last example is a product I created when I was working at Maritime Life. It was the Financial Insurability Option Rider (FIOR) which allowed the policyholder to purchase additional insurance in the future without medical underwriting based on the future value of an asset. What was amazing with this product is that I was able to reinsure it at 100%. Everyone had told me this was impossible to do but again I felt this product was right and I just needed to convince the reinsurers of this, which I did. In less than 6 months, I was able to put on the books 500 millions of insurance on a future option basis and it was all reinsured. Sadly I tried to convince Maritime Life to create a simpler version of the product for small businesses but Maritime Life decided to pursue the holy grail of insurance which is to create a Universal Life product that is better as an investment than a mutual fund. This was a disaster and I was proven right a year later when Manulife introduced its Business Value Protector (BVP) which was exactly the product I had pitched. Years later when I started to work for Manulife, I was able to witness how this BVP made Manulife the dominant insurer in the business market. An interesting fact here again linked to morality is that I used all the BVP which I considered free sales (without medical underwriting) to increase my total sales with such a success that I received a call from a senior underwriter at Manulife complaining about this. This underwriter told me: “We never priced this product on the possibility of the people using it.” I have to say this made me mad and I responded: “If this is the case this means your pricing was a bet that clients would be too stupid to recognize a good thing or that we the sales people would not act in the best interest of the client by NOT recommending that they purchase the additional insurance. Either way this pisses me off because it’s not ethical.” That ended this conversation right there and I hope that some senior executives at Manulife read this last passage. There is a need to reconnect with morality within this company.

Are life settlements right or wrong?

To first answer this question using morality; let’s look at what the people against life settlements are saying and the arguments they used.

Fear: There has been fraud in the US involving life settlements.

This is the position of CHLIA representing the insurance companies in Canada. Is this a weak argument? Based on this logic, we should close down the mutual fund industry because there had been fraud (MADOFF) in order to protect the customer. What about the subprime fiasco? Should we close down the mortgage market?

Fear: The cost of insurance will go up for new products.

Basically the argument is that life policies are lapse supported. Life settlements will reduce lapses which will impact the profitability of the insurers which will have no other choices but to pass this cost to new customers under the form of higher cost of insurance. Can someone explain to me how insurers who have marketed heavily zero lapse sales strategies to spruce up their sales such as back to back insurance and triple back to back can make this type of statement? The fact is that the insurers have corrected for lapses either by reducing their lapse rates and increasing their cost of business or by going out of business. Life settlements can indeed impact the profitability of the insurers but only for the insurers that have bought other insurers and their toxic life insurance products. This will depend on whether or not the insurer when buying the other insurer has corrected his bid/price under the assumption there will be no lapses with these toxic life products. If we look at Transamerica and how this company has managed the acquisition of NN, we should be worried considering the aggressive strategies used by Transamerica to increase lapses on NN products. Transamerica got caught in the act and was forced to settle a Class Action on this subject. Still this is not the problem of the policy owner and they should not be subsidizing acquisitions of other companies by losing their right to use their insurance as they see fit.

Insurance is not an investment/asset that should be monetarized.

Again the insurers use hypocrisy to support their arguments against life settlements. Insurers and their sale managers have long forgotten the meaning of insurance. You only have to open their marketing materials and it’s all about how insurance is a great investment. But suddenly if the policy owner wants to take advantage of this investment suddenly it is portrayed as insurance with the argument that it should not be traded. However an insurer promotes concepts such as shared ownerships that are based on the trading of life insurance. Also with Revenue Canada allowing the gifting of life policies at Fair Market Value instead of at Cash Value, these gifts are truly life settlement. Basically the argument seems to be about the insurers controlling the use of life settlements for their own benefits and opposing life settlements that are to the benefit of the policyholder.

There is no more insurable interest when there is a life settlement.

Again there is such hypocrisy with this statement. Insurers have been the first to dilute the notion of an insurable interest with their tax strategies. There is no need for insurance just buy it as a tax shelter. This statement is also partly false and will depend on how the life settlement will be done and whether there is a change of ownership on the policy. In a mortgage type life settlement, where a loan is made against the Fair Market Value of the policy, there are no change of ownership and the insurable interest remains the same. Finally the question of insurable interest is only material at the issuance of the contract and not after.

So now that we have demonstrated the very weak arguments used by those who opposed life settlements, do this make life settlements right? The answer is no but it provides us with an idea.

Let’s go back to our disable man. He has a Universal Life policy with a death benefit of $500,000 and a cash value of $50,000. Under the disability benefit he will be able to withdraw the $50,000 on a tax-free basis. Great he thinks but someone forgot to inform me about a little detail. In 30 days, he will receive a premium and lapse notice. Surprise! Surprise! There are no more cash values to support the policy. In his condition he can’t resume payment of the policy and like most people who have bought a Universal life he has not bought the premium waiver option. So this means the policy will lapse at a time when he is probably uninsurable. Also he can’t request an advance on the death benefit since he is not terminally ill. So truly under this condition, it is the insurance company that benefits from this situation and lapse. However let’s assume that the Fair Market Value of the $500,000 death benefit is $100,000. Someone is willing to offer him a life settlement either through a buyout or loan at 25% of that value. So this is an additional $25,000 in his pocket. Is that wrong? The one that should benefit from the asset is the one that owns the asset and certainly the one that is in the greatest need.

Second situation is more obvious. The fact is that Life Insurance Companies have heavily marketed the concept of life settlements. It is one of their main concept and sale strategy and it’s called leveraging. Leveraging, a concept used by all insurance companies is a form of life settlements. I call this a life settlement at the Liquidation Value of a life policy instead of at its Fair Market Value. Leveraging is also a Zero Lapse Strategy. If you leverage a policy, the only way to get out and repay the loan is to die. This means the policy owner will not lapse the policy. To illustrate this let’s look at a client who has a Universal Life with a death benefit of $500,000 and cash value of $100,000. He goes to bank A and he is offered a leveraged deal and settlement of 75% of cash value. For this case insurance companies state this is legal and heavily promotes this concept. The client goes to bank B and the bank is also willing to offer a leveraged deal of 75% of cash value. However this bank has done a market value evaluation of the death benefit/cash value and the value (FMV) of the policy has been established at $150,000. The bank B is willing to offer a 75% leverage deal on this value. Suddenly for the detractors of life settlements, this would be illegal and trading in life insurance. I think not…

Finally detractors of life settlements state that there is no need for a life settlement industry in Canada because insurers offer advances on the death benefit if you are terminally ill. First this statement constitutes an illegal restraint on trade and is therefore illegal under the Competition Act of Canada. Already there has been complaints made and it is just a question of time before this matter is investigated. The terminal illness clause is very restrictive and the client is left at the whim of the insurer. The client should have the right to shop for the most advantageous terms for this type of advance. Also demographic changes in our society have created needs that cannot be ignored. Already the family house that used to be part of the estate is now shifting to retirement because people do not have enough money to retire. It is only normal that these people should view their insurance as an asset. For the sandwich generation who must take care of their parents, there is also a financial struggle. Is it wrong for a daughter who feels guilty of not having been there to care for her mother before her death of wanting to be there to take care of her father? However she will have to stop working and therefore how can she afford this? A life settlement on the policy would have solved the situation. We have not yet even discuss long term care situations and cost.


Life settlements in Canada is not only right but it is inevitable. However as I have discussed with the proponents of life settlements such as Daniel Kahan it does not mean we just start considering life insurance as just another asset. We must study what has been done abroad to avoid repeating costly mistakes. The market must be regulated and I worried that the provincial regulators are not up to the challenge. This is why I believe this should be a federally regulated market even if insurance falls under the provincial responsibilities. I certainly prefer the mortgage type of life settlements as there are no changes of ownership and the mortgagee profits are not linked to how fast the insured will die but how long he will live since the profits are earned on the interest paid for the loan. Finally unlike any other asset, insurance is made of many interests such as the beneficiary interest. Personally I would not get involved in any life settlements where disclosure of the settlement has not been made to the beneficiaries and the person who will take care of the estate. Buy-in from the beneficiaries I believe is not a requirement but disclosure is.

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THE FMV approach to life settlements…

The only FMV calculator for life insurance

The FMV_Life App has been designed as a tool for financial advisors in order to give them the ability of doing a quick estimation of the Fair Market Value (FMV) of an insurance policy. Currently advisors are unable to provide any information regarding this value because it is not in the interest of many insurers. However the fiduciary duty of the insurance advisors requires that they inform their clients of this value. Breach of such fiduciary duty, by not disclosing the FMV of an insurance policy, could have severe consequences on the career of a financial advisor and financial situation of a client.

What is the FMV?

Life insurance is an asset and like any assets, it has many different values. The FMV of a life insurance policy is the amount that an informed third party dealing at arm’s length would be willing to offer to purchase the life policy in question.

Normally to determine the FMV of a policy, a policy owner would hire an actuary to do the valuation. Usually the process would start with a pre-evaluation which is a rough estimate of the FMV. The cost is $250 to $500. This estimate is then used to decide whether there are any benefits in ordering a full valuation which usually cost around $2,500.

The FMV_Life App replaces the pre-evaluation which will save time and money to the client. The FMV_Life App provides an estimate of the value of the death benefit. However it does not include the value of any other guaranteed benefits such as interest guarantee, paid up additions… The values of such guarantees should be determined through a full evaluation.

Do I have to do an evaluation of the policy by an actuary if I want to use the FMV of my policy?

The answer is negative. An actuary provides an actuarial evaluation of the policy. That evaluation may be different than what the FMV truly is. An actuary may not know what a third party will offer you for your policy. However we recommend that such a valuation takes place as it easier for the policy owner to justify an FMV, if it has been used in a transaction resulting in a tax benefit, if the policy owner can refer to a rigorous analysis.

Why is the FMV of my policy important?

Because policy owners are unaware of the FMV, they are unable to choose the best form of settlement for their policies. As a result in the USA alone, policy owners mostly made of seniors lose $112 billion in life insurance benefits every year.

What is a life settlement?

There are many definitions of a life settlement. This has created a lot of confusion. Insurers have simplified a life settlement to the notion of a Viatical life settlement to discredit any form of settlements outside of the forms of settlement they offer through the life policy contract. We believe it is wrong and that to protect consumers we have to change the level of discussion in order to view a life settlement from a comprehensive perspective.

A life settlement is the disposition, wholly or in part, of an interest in the property of a life insurance policy in favor of a third party for or without any forms of considerations.


What are the different types of life settlement?

There are two main types of life settlements and they are contractual life settlement and non-contractual life settlements.

Contractual Life Settlement

A contractual life settlement is the disposition of an interest in a policy, wholly or in part, under one of the provisions found in the life policy contract. In this case the third party who receives the interest in the policy is the insurer. There are 3 main types of Contractual life settlement;

1) Cash Value Settlement: This is the liquidation value of a policy whereby a policy owner liquidates his death benefit position in exchange for the cash value of the policy (CSV). We could state that in exchange of the CSV, the insurer regains the property of the death benefit. Usually the liquidation value (CSV) is inferior to the FMV and this is why liquidation is very profitable to the insurer.

2) Loan Settlement: Most life policy contract allows the policy owner to take a policy loan against the cash value of his policy without having to liquidate his death benefit position. Interest will accrue against the loan as per the interest rate stated in the contract. This rate would be currently a lot higher than current interest rates. Depending on the Adjusted cost base of a policy, this loan may be taxable contrary to a loan made under a non-contractual life settlement.

3) Living Benefit (Disability and Critical illness):The Disability benefit is the payment of the CSV tax-free when the insured is faced usually with a total disability or a critical illness. The living benefit is different. When an insured is faced with an illness that has significantly decreased its life expectancy, the policy owner could request an advance on the death benefit. This option was a response by insurers to justify their opposition to Viatical settlements. Sadly insurers have not honored their promise and have made the qualifications extremely difficult to meet in order to qualify for a living benefit. It is obvious!!! Insurers would prefer that the policy owner takes the CSV instead of offering an advance on the death benefit.

Non – Contractual Life Settlement

1) Leveraged settlement:This settlement involves using the life policy to secure one loan or series of loan by assigning the policy as collateral. The third party is a lender which is usually a bank. Sadly the banks are only willing to consider the FMV of a policy and only loan on the CSV of the policy. This type of settlement is usually used to create additional retirement income.

2) Corporate settlement:This is a very important type of settlement and involves a transfer of ownership of a life policy between an individual and a corporation. The tax liability or tax benefit is based on the FMV of the policy and this is why an evaluation of the policy is highly recommended for this type of settlement. Usually there is a tax liability upon the transfer of a policy from a corporation to an individual and a tax benefit when the insurance is transferred from an individual as a tax free rollover to a corporation. An individual considering between cancelling the policy to get the CSV or the rollover will select the rollover if the tax benefit of getting the money out of the corporation equaled to the FMV of the policy less tax paid on the disposition of the policy is greater than the net after-tax value of the policy.

3) Family settlement: This should be the most common type of life settlement and the fact it is not illustrate that advisors are not conserving life policies. Prior the cancellation of a policy, the policy owner should have a discussion about the FMV of his policy with his family to see if the members of the family are willing to take over the policy by continuing paying premiums even if the cash value is withdrawn. The knowledge of the FMV permits to do a straight Internal Rate of Return analysis of paying the premium versus the FMV of the policy. This type of settlement can also be done on a Split Dollar basis as described below.

4) Charitable settlement:This type of settlement involves the donation of the life policy to a charity. Revenue Canada now allows the transfer to be done at Fair Market Value instead of at Cash Surrender Value. The financial decision of proceeding with the donation will depend whether or not the value of the Charitable tax credit is greater than the after-tax value of the CSV.

5) Reverse loan settlement:This loan takes its origin from the Reverse Mortgage. The third party is usually a private lender who will accept to do a loan based on the death benefit and life expectancy of the insured. The policy is assigned as collateral and the policy owner retains the property of the life insurance. For provinces where this is considered trading and where trading is prohibited, this type of loan is still available. However the policy will not be directly assigned and a claim will instead exist against the estate. Since there is no change of ownership, there is no disposition and therefore the amount received is not taxable or reduced by taxes.

6) Viatical settlement:This is an arrangement whereby the policy owner (usually the policy owner is suffering from a decline in health) is selling his life insurance policy to third party (stranger or company whose business is buying life policies) that is in the business of buying such life policies. There is a change ownership and this will trigger a disposition of the policy which may result in taxes being owed. Also the amount of the FMV above the proceeds of disposition will also need to be included in the income of the policy holder. As a result, from a tax perspective it is the least advantageous. A policy owner would proceed with such settlement if the net after-tax amount received is greater than the net after-tax cash value

7) Split dollar settlement:This type or arrangement involves the splitting of a life insurance policy into two benefits, the death benefit and cash surrender value benefit with one of the benefit owned by the current policy owner and the other benefit transferred and owned by a third party under a rental or ownership agreement. Popular at issue of a policy, this type of settlement can also be put in place at anytime in the life of a life policy. This type of arrangement could be combined with a family settlement or corporate settlement. For example, a policy holder would transfer on a rollover basis the death benefit of his policy to his investment corporation in exchange for the FMV but would retain the ownership of the CSV and the ability to further invest into the policy on a personal basis if for example the policy had an interest rate guarantee of 4%.


No cash value: does it means no value?

This is where the insurers are committing fraud against policy owners with some insurers prohibiting agents from revealing the real value of a policy.

What the insurer is not showing to the policy owner is that for T100 and Universal Life with a level cost of insurance; the policy owner is prepaying the future cost of insurance.

For example, let's assume your mortality rate is .01 and you buy an insurance policy of $100,000; the cost of insurance is $1,000. In year 2, the mortality rate increases to .011 and the cost will be $1,100.

When an insurer convinces you to buy a T100 or UL (level COI), the insurer will convince you to pay a cost of insurance of $5,000 for example for the life of the policy.

This means that in year 1, you will be overpaying your real COI of $1,000 by $4,000. This overpayment does not disappear. It is set aside to pay the COI, in future years, when that COI becomes greater than $5,000.

The value of this overpayment of the COI is not reported to the policy owner.

If you cancel such policy, the insurer will take everything that you overpaid and put this money into their corporate pockets. As a result, they want you to cancel that policy prior the COI becoming greater than the premium of $5,000

Insurers love to state that they want to keep these cancellation to a minimum but this is not true. If this was the case, why are they preventing their agents from informing you about the value of your prepayments?

These prepayments are worth a lot of money. If you take a T100 at age 50 for $100,000, the value of these prepayments are worth $100,000 at age 100. In fact the policy is paidup by all the premium you have paid. Would'nt it be nice for the insurer if you were not aware of this and you cancelled that policy? $100,000 of easy profit and easy money!!!

It gets worst!A life insurance policy is not sheltered from taxes. The federal government taxes these reserves at a rate of 15%. The cost of these taxes are hidden in the COI you are paying or MER you are charged. When the policy is cancelled, the government will pay back a credit to the insurer for all or part of the taxes that was paid. The taxes that you have paid,your taxes, will go into the pocket of the insurers!!!


Why would my advisor not mention life settlements?

When an agent wants to sell the life insurance products of a life insurance company, he must signed an agent contract.

This contracts stipulates the duties and obligations of the agent towards the insurer.

As a result, the insurer can contractually limit what an agent can do and disclose to his clients.

These limits that are imposed on the agent are not disclosed to the policy owner since he does not have access to the contract signed between agent and insurer.

Life insurance agents are provincially regulated through the license they are required to have in order to sell life insurance. As a result, the contract between agent and insurer if it is to be legal cannot supercede the Insurance Act of the province where this contract was signed.

However insurers do not adapt or change their agent contract in relation to the law of the jurisdiction where this contract is signed.

As a result, companies such as Manulife include a provision in the agent contract that the contract of the agent will be cancelled if he helps his client with non-contractual forms of life settlement which are not approved by Manulife.

A non-contractual life settlement is a settlement obtained outside of the contract with a third party that is usually not the insurer.

However is some provinces such as Quebec, this provision of Manulife agent contract is illegal since the law is clear. The duty of the advisor is first to the client and this cannot be contractually limited by an agent contract. The agent must disclose all information to the client and make the proper recommendation even if this includes a life settlement not approved by Manulife.

Manulife has publicly threatened its agents in the press of cancelling their contracts if they obey the law. Advisors as a result don't mention all of the life settlement options to their clients because the provincial regulator is too afraid to take on a big insurance company such as Manulife.


Are life settlement illegals in any Canadian provinces?

Life Settlements, in any forms, are legal everywhere in Canada. You, as the owner of a life policy, unless explicitely stated in the policy contract, can do anything you want to do with an asset that you own.

Some companies such as RBC Life Insurance have a provision, that they have the right to refuse a change of ownership. As a result, they have the right to limit life settlements where a change of ownership is required.

It is impossible for the government to restrict the enjoyment of a property by its owner (including life insurance) without a valid reason.

The only valid reason that could restrict the availability of a life settlement is the lack of insurable interest. However in every provinces, the law state that the policy owner in deciding what to do with his policy can waive the requirement of an insurable interest after the policy has been issued.

This means that in every provinces, you as the policy owner can offer your life policy for sale to anyone; you can advertise and put your policy for sale...

However a province can easily restrict a commercial activity and the existence of a market. Most provincial governmemts have done this except Quebec, Nova Scotia and Saskatchewan (subect to change in the law).

Basically the provincial government has introduced a provision stating that no one can sollicit for the buying or loaning against life policies unless you are an insurance company. Basically a potential buyer can't contact you to buy your life insurance but you can contact them. As a result, it makes it impossible for an organized market to evolve. Any organized commercial activites from a buyer would fall under the prohibition for sollicitation.


Can my insurer cancel my policy if I enter into a life settlement?

An insurer cannot cancel your life policy is you enter in any kind of life settlements. An insurer could refuse to transfer the ownership of your policy or do an assignment if it is stated in the contract. As a result, the life company could indirectly limit the right of policy owners in entering into a life settlement.

Some insurers such as Industrial Alliance, Assumption Life and Desjardins have publicly stated that they would cancel a contract where a policy owner enter a life settlement where there are no insurable interests. This would constitute a fraudulent breach of contract on the part of these insurers which is a criminal act under Canadian law subject to a prison term.

For more details on this, please read our consumer warnings regarding Industrial Alliance, Assumption Life and Desjardins...


Should I wait into a life settlement now or later?

The critical factors in deciding to enter into a life settlement is your current health, the state of your financial affairs and your ability to pay the premium.

We will start with the most obvious. If you can't pay the premium and you are about to cancel your life policy, you have nothing to lose in considering a life settlement. Remember you may be about to cancel an asset that is worth more than what is reported by the life insurance company. Why not selling the policy to a third party? If you live in a province where a life settlement market does not exist, just contact someone in Quebec. Do not be afraid by the fact that a third party will buy your policy. These third parties are pension fund companies who need access to long term investments and life insurance is the perfect investment.

If your life expectancy has suddenly decreased because of an illness or other conditions (becoming a smoker is such a condition), your policy has suddenly acquired a lot of value. If you have financial problems, a life settlement would be the perfect solution.

Beware of the offer of the living benefit offered by insurers. Living benefits are offered when your life expectancy is less than 5 years. Basically the insurer will advance you part of the death benefit. Insures offer this option as a way to mislead regulators in believing that a life settlement market is not needed and that the provision against the sollicitation for the buying of life insurance should not be changed. In reality, this is only smoke and mirrors. Our investigation has revealed that most insurers deny access to these living benefits in the hope that the critically ill policy owner unable to pay his premium will cancel his policy.

You should always consider a life settlement loan from a third party before the outright sell of a life policy to a third party in order to protect the beneficiaries of your policy.

If there have been no changes in your insurability, the FMV of your policy will increase every year just because of the fact that your mortality is increasing with age. As a result, if your insurability has not changed, you should consider the future FMV of your policy based on no changes of health and with changes of health. Please refer to this report exemple to see what this is about. FSCA provides FMV report and analysis at very fair rates.