The Canadian Life and Health Insurance Association (CLHIA) is lauding the provincial government of Nova Scotia for amending the Insurance Act by passing Bill 238, prohibiting the trafficking of life insurance policies.
Life insurance trafficking, also known as “life settlements,” refers to the sale of an existing insurance policy to a third party for a one-time cash payment. Notably, payment is more than the surrender value, but often less than the actual death benefit.
A statement from CLHIA noted that in the US, where life settlements are allowed, there have been cases of abuses such as insufficient contract disclosure and misleading sales practices targeted at senior policyholders.
“Nova Scotia’s legislation will protect vulnerable consumers while ensuring that life insurance continues to fulfil its purpose of providing financial protection to individuals and their loved ones,” said CLHIA president and CEO Stephen Frank. “Our industry has been vocal in our concerns that life settlements pose a very real and significant risk for fraud and abuses of consumers.”
Bill 238 not only amended insurance regulations to forbid third parties from purchasing life insurance policies, but also clarified the definition of life insurance premiums – which reinforced the separation of insurance and banking. The clarification makes Nova Scotia the second jurisdiction after New Brunswick to create a definition.
“It’s becoming increasingly clear that legislators across the country are committed to protecting Canada’s longstanding public policy, which differentiates insurance contracts from deposit-taking accounts,” remarked Frank. “We will continue to work jointly with all remaining provinces to help them clarify their rules where necessary to enshrine this important principle.”
