Monitor Telegram

Bringing about a higher level of transparency and accountability in provincial and federal governments to help protect taxpayers from abuse

Bringing about a higher level of transparency and accountability in provincial and federal governments to help protect taxpayers from abuse.

  • About the Monitor Telegram
    • Your Little Ol’ Canadian Goose Is Being Cooked
    • What Are These Guys Doing With Your Money?
    • Yes, Your Tax Dollars Are Being Blown Away!
    • My Old Age Pension Is How Much?
  • Tax Dollars Wasted
  • Government
  • Healthcare Waste
  • Nutty Stuff
  • International Waste
  • Contact Us

Reverse Mortgages and Life Settlements in Ontario in 2017

January 4, 2018

(This article has been written by Daniel Kahan ASA, with permission to publish)

In October 2017 a Private Members Bill No. 162 was introduced to LEGALIZE Life Settlements in Ontario and allow seniors the right to SELL their existing life policies (after they had been in force for 3 years) to a Third Party Investor (subject to a 10 day cooling-off period). This Bill passed its Second Reading and was referred to the Committee of the Whole House. As of December 14, when the Legislature went into Recess, the earliest this can happen is after February 20 and before the start of the June Election Campaign in April.

Nobody has ever questioned the right of Ontario seniors to downsize and sell their homes to whomever gives them the best price OR to stay in their homes and if they are ASSET RICH and INCOME POOR to take out a Reverse Mortgage (subject to Independent Legal Advice). However when it comes to disposing of their permanent life policies, because of the 1933 Section 115 of the Ontario Insurance, they can only “sell” their life policy back to their own life insurer for its Cash Surrender Value OR borrow against this CSV from a Bank (if they don’t want to get taxed by taking out a Policy Loan).

So Bill 162 is a 21st Century initiative sponsored and promoted by www.lisac.ca a new Canadian Life Settlement Industry Association to MODERNIZE the Ontario Insurance Act and give Ontario Seniors the same FREEDOMS they now enjoy when it comes to Same Sex Marriages or buying wine in (some of) their local supermarkets.

However sec. 115 of Ontario Insurance Act also prohibits the offering of “reverse mortgage” Life Loans and there is nothing in this new Bill 162 to LEGALIZE this type of Loan secured by a Collateral Assignment of the life policy, where the Loan to Value is based on the current age and health of the policyholder and his estimated future Life Expectancy.

I have therefore contacted and met with Jack MacLaren, the lone MPP of the new Ontario Trillium Party and he has agreed to sponsor an Amendment to include Life Loans in Bill 162 if and when the Committee of the Whole House meets after February 20.

Based on the 2001 CAIFA (now Advocis) Stakeholder Submission to the DRAFT FSCO Viatical Settlements Regulations produced after the passage of Schedule G of the Red Tape Reduction Act in Dec. 2000 and a 2004 CARP 50Plus Magazine article reprinted last week by the Monitor Telegram, the “Canadian” Loan approach is PREFERABLE to the “US” Settlement approach from a Consumer perspective.

When it comes to Living Benefits and Viatical Settlements (which are specifically EXCLUDED from Bill 162) I think it would be worth reprinting the Executive Summary from the 1997 Ontario Ministry of Health Feasibility Study as nothing has changed since then (excect that AIDS is no longer a Terminal Illness) and if in July 2018 marijuana will only be sold by the LCBO, then why not have OHIP operate a NON-PROFIT Viatical Settlement Company to help reduce its expenses or improve its services??

[pdf-embedder url=”https://https://monitortelegram.com/wp-content/uploads/2018/01/ontario-MoH-1997-feasibility_study-Exec-Summary.pdf” title=”ontario MoH 1997 feasibility_study Exec Summary”]

Filed Under: Contributor Tagged With: Life Settlements in Ontario, Living Benefits and Viatical Settlements, reverse mortgages

Use your life insurance for cash now?

December 13, 2017

BY JUNE YEE – REPUBLISHED WITH THE PERMISSION OF THE CANADIAN ASSOCIATION FOR RETIRED PERSONS (CARP)

[This article was provided to the Monitor Telegram by Daniel Kahan]

The costs of caregiving bear out the fact that growing old can carry real financial burdens. Recent innovations in the financial services industry underline concerns about paying these costs. Critical illness insurance and long-term care insurance as well as a more recent innovation, the so-called “nursing care” annuity, are touted as ways to lessen the financial stress of aging.

But these products aren’t available to everyone. “What happens to people who are going to a nursing home today? It’s not going to help them to buy a long-term care policy. Somebody who’s got cancer or needs a bypass – they can’t buy a critical illness policy,” says Daniel Kahan, an actuary in Toronto and a staunch supporter of viatical settlements.

Accessing life insurance equity
Viatical [editor: .  viatical – describing the purchase of an insurance policy from a holder who is terminally ill} arrangements represent an income alternative that’s rooted in insurance but dramatically different from our traditional perception of life insurance. In a viatical settlement (the term viatical is rooted in the Latin viaticum, referring to supplies or money for a journey), the policyholder sells the death benefits of the life insurance policy at less than face value to a third party; the buyer-investor keeps up premium payments and is entitled to the full death benefit when the policyholder dies. The policyholder gets cash upfront, and the investor’s return is based on the amount paid for the policy and the time that passes before collecting the death benefit.

“Somebody who is 80 years old and has been paying their premiums for 20 years needs to go into a nursing home. Eventually, when they die, their estate gets the money, but they need the money now.” says Kahan. “Why not allow a mechanism where they can convert that equity into cash with an income stream?”

Kahan had hoped changes to the Ontario Insurance Act in December 2000 as part of that province’s Red Tape Reduction Act would allow viatical business. But nervous politicians nixed the new rules at the last minute, saying that viaticals wouldn’t be allowed until proper regulations were in place. In July 2001, the Financial Services Commission of Ontario (FSCO) issued draft regulations, asking for comments.

Opponents of viatical settlements cite widespread fraud in the United States, where viatical settlements are a booming business, as a reason for caution – or not at all (see “Fraud Cuts Both Ways,” [editor’s note: not available online]). Proponents of viaticals, however, say fears are unfounded and that it’s unfair to refuse policyholders, some needy, the right to sell their policies.

Currently, third-party trade in insurance policies continues to be prohibited in all provinces and territories except Nova Scotia, New Brunswick, Saskatchewan and Quebec. In the provinces where they are legal, lack of regulation means a lack of protection.

The key issue in the draft regulations is how to control the abuses that have characterized the U.S. viatical industry to date. Among the key questions are: who should be allowed to conduct business in viatical settlements; should viatical settlements be limited to only the terminally ill; how long a life expectancy should be stipulated as a condition of viaticating a policy (draft rules call for a two-year limit); and, not least, just who will regulate the industry.

Interested parties are watching Ontario these days. The bulk of life insurance policies in Canada reside in this province, and regulations governing viaticals are on the drawing board.

Seniors a prime market
Where viatical settlement business is legal, seniors are a growth area. The so-called “senior settlements” business, which has little to do with being terminally ill but everything to do with being old, has sprung up as a niche within the viatical industry. It’s a sound business concept, according to Victor Lansdown, who operates Life Source and Associates Inc., a Montreal company that buys life insurance policies. “It [the insurance policy] is a time-valued instrument. The healthy seniors, all they have against them is their age.” In other words, the older you are, the shorter your life expectancy, and the more you can expect to get when you sell your policy. “Seldom are we able to assist a person with a life expectancy of 12 years, for example. The majority would be 10 years [or less].”

Why the Canadian insurance industry is wary

For its part, the Canadian insurance industry largely opposes viatical settlements, claiming that living benefits, otherwise known as accelerated benefits, in which policyholders with life expectancy of less than two years may obtain an advance of death benefits, already fill the need. Living benefits originated as a compassionate response to the AIDS epidemic of the early ’80s, which saw many terminally ill patients facing staggering drug costs with no way to pay.

There are potential problems with this, however. Although living benefits are offered by most insurers, they are essentially a voluntary guideline, rather than part of any insurance contract. Also, living benefits are usually limited to 12 to 24 months prior to expected death.

“We’re not so much opposed to consumers getting their money. We had major concerns with the fraud associated with the viatical product,” says Andrew Casey, vice-president, legislative, of the Canadian Life and Health Insurance Association (CLHIA). “It was an industry that was rife with fraud and deception.”

Indeed, viatical transactions recently ranked sixth in BusinessWeek’s list of the most prevalent investment frauds in the U.S. Meanwhile, the Canadian Securities Administrators describes viatical settlements as “very risky investments and often fraudulent.” Casey also insists our superior health-care system means a weaker case for viatical settlements in Canada than in the U.S.

Tax implications
There are other technical issues. Casey notes concerns about the tax implications of viaticating a policy. “If your policy is paid out by the company, there’s a tax-free aspect. But once you viaticate it, you’ve sold that policy and that’s taxable.” This income could also affect pension benefits (for example, boosting a pensioner’s income past the threshold for clawback of Old Age Security).

One solution put forward by CAIFA, the Canadian Association of Insurance and Financial Advisors, in its response to FSCO’s consultation draft for viatical settlements in Ontario, is to set up the viatical settlement as a loan. “Among [the benefits to the viator, or person selling the policy] is the ability to avoid tax liability and to pay to a beneficiary any part of the death benefit that remains after repayment of the loan and interest.”

Kahan’s vision goes further – to a not-for-profit organization run by the provincial government to facilitate viatical settlements for the needy. A settlement would take the form of loans made against the security of collateral assignment of the policy. He points out the Ontario Ministry of Health has examined and pretty well established the feasibility of establishing a non-profit viatical organization in Ontario.

Unfortunately, this study seems to have been largely ignored in the current discussions. Says Kahan, “If the government were really interested, they could do it themselves.”

Fraud cuts both ways
The U.S. experience with viatical settlements shows regulators grappling with fraud; not only are insurance applicants participating in the crooked schemes, they’re being helped or encouraged by insurance agents and brokers eager for more policies to be available to investors, according to http://www.crimes-of-persuasion.com. The website, which serves as a fraud watchdog of sorts for consumers, lists two of the more common viatical investment schemes as:

  • Clean-sheeting, in which a life insurance applicant fails to disclose a pre-existing medical condition in response to a question on a life insurance application. Because medical exams can be forgone, this ensures the policy will be issued and can then be sold.
    • Wet-ink policies, in which the insured sells their policy or multiple policies from different insurance companies, sometimes within weeks, while there’s little chance of finding out they’re terminally ill.

© August 2004 50Plus Magazine

Filed Under: Contributor

Search This Site

Sign Up to receive our bi-weekly email newsletter!

  • This field is for validation purposes and should be left unchanged.

Publisher’s Views by Robert D. Smith

“Canada’s Taxpayer-Funded Medical Liability Protection Agency” – a Six-Part Series

April 17, 2018

The Monitor Telegram has been sent and been given permission to publish a … [Read More...]

Duplessis Orphans – Victims of Abuse in Quebec Suing Catholic Church and Quebec Government

February 8, 2018

Late last month, a motion to receive approval for a multi-million dollar … [Read More...]

Victim’s Descendent Finally Gets Meagre $100,000 from Canada for Montreal CIA Torture Experiments

November 30, 2017

One of the darkest chapters of Canadian history surely has to be the … [Read More...]

More Articles from Robert D. Smith

Contributors to the Monitor Telegram

Life Loans — Enabling Seniors to Live Better Lives

April 5, 2018 By editor

Executive Summary  Making loans to life insurance policyholders or the … [Read More...]

Legislation aimed at the root causes of Medicare and Medicaid fraud in the US

January 18, 2018 By Jeff, Leston

Recently the Health and Human Services Office of Inspector General issued a … [Read More...]

Reverse Mortgages and Life Settlements in Ontario in 2017

January 4, 2018 By Daniel Kahan

(This article has been written by Daniel Kahan ASA, with permission to … [Read More...]

More Contributor Articles

Copyright © 2025 · All Rights Reserved · Monitor Telegram · Read Our Privacy Policy