A life insurance policy has value, and you don’t have to wait until you die for the benefits. You may want to sell your policy now if you need cash or can’t afford the premiums. However, selling your policy to a third party is banned in Nova Scotia. So how do you recoup your investment now? Here’s what you need to know.
Viatical Settlements in Nova Scotia
A viatical settlement is a transaction whereby a policyholder sells their policy to a third party. The money received would be more than the potential cash settlement from the insurance company but less than the total death benefit. The seller gets an immediate influx of cash, and the buyer receives the full death benefit after the insured person dies. However, selling your life insurance policy through a viatical settlement is illegal in Halifax and Nova Scotia.
In 2020 Nova Scotia banned viatical settlements due to a high risk of fraud and financial abuse targeting seniors and other vulnerable, desperate people. The move makes it more difficult to cash in on your policy.
Alternatives to Selling Your Life Insurance Policy in Nova Scotia
There are alternatives to selling your life insurance policy in Nova Scotia, namely:
Transferring life insurance. You can transfer your life policy to someone else, who can assume your premiums and be named the beneficiary. The new owner must prove insurable interest, meaning they’ll experience financial loss if the insured person dies. There may be tax implications for the new owner, so be sure to speak to an insurance broker to get all the details.
Policy loan. You can borrow money from your insurance company, using the policy's cash surrender value as collateral. However, you can only borrow up to around 80 per cent of the cash value, and you’ll still have to pay the premiums, or your policy will lapse. Moreover, only whole life insurance policies are eligible. Term life insurance policies don’t have a cash surrender value.
Compassionate assistance. Some insurance companies offer compassionate assistance in the case of critical illness if you don’t have living benefits insurance. They may pay out a portion of the death benefit if the policyholder is diagnosed with a terminal illness, typically with less than two years to live. You can use your compassionate payment any way you want, and it isn’t taxable.
Buying and Selling Life Insurance in Halifax
At Eisenhauer Insurance Inc., our experienced brokers can help you navigate complicated life insurance legislation and regulations. Contact us today to schedule an appointment with an insurance broker and get the best insurance plan for your needs and budget.