Questions raised on Nova Scotia’s Bill 238
A newly passed bill in Nova Scotia that restricts third-party trades in life insurance has unfairly limited policyholders’ options in unlocking the value of their policies, says one advocate.
Kahan owns Ontario Life Line, an actuarial consulting practice which provides actuarial Fair Market Valuation of life policies for donations to charities. Aside from having a subsidiary company called Atlantic Life Line Ltd. that’s still active in Nova Scotia, he has been working to create a virtual online exchange to match private lenders with policyholders to be based in the province.
“I’m concerned that [the policyholders] weren’t event consulted on whether they agreed [with this change],” Kahan said in an interview with Life and Health Professional.
Under the provisions of Bill 238, which received royal assent on March 10, any person other than an insurer or its authorized agent who deals or trades in insurance for the purpose of procuring the sale of insurance to the person, among other types of transactions, is guilty of an offence.
The bill affects a business model Kahan first introduced in the province in 1995, for which he requested and got a green light from Nova Scotia’s Superintendent of Insurance.
“When I set up Canadian Lifeline, we called it a viatical loan company,” he said. “We were doing loans, not life insurance settlements. But based on the wording of the amendment, it’s illegal to even make a loan, as it prohibits the hypothecation or assignment of insurance to a third party.”
According to Kahan, his firm would act as an intermediary between policyholders and creditors willing to provide loans secured against their policies, in a transaction similar to a reverse mortgage. A private lender would charge a certain rate of interest per annum, which Kahan said was 8%. Through such transactions, some individuals can get access to much-needed liquidity during their lifetime, and the lender would be able collect the amount they’re owed upon the policy holder’s death.
“We’d give full disclosure to the policy holders, explaining the terms of the loan, what the interest rate is, and the expenses,” Kahan said. “And we’d insist that they have a lawyer with them just so there’s someone to provide independent legal advice.”
While Kahan acknowledged that insurance companies offer a living benefit, he said policyholders can’t avail of that option unless they have less than one year or less than two years left to live, depending on the company. However, some medical professionals may not be willing to tell their patients that they will pass away in two years. “We didn’t have that restriction,” Kahan said.
He added that while there are banks that offer loans for policies issued by certain carriers, such loans are given against a policy’s cash surrender value. In contrast, the loans facilitated through Kahan’s business are secured by the equity in the life insurance policy.
“You can even have lenders who are willing to pay the premiums in case the policy holder is unable to,” he added. “In those cases, the annual premium payment made by the lender is added to the principal of the loan.”
According to Kahan, there has not been much demand for life policy loans in Nova Scotia compared to previous years; many sought them as a solution in the ‘90s when AIDS was a widespread problem, but have fallen into decline as cocktails of drugs to combat HIV have been developed. But with the current COVID-19 crisis developing, he is concerned that some people may get sick with the coronavirus and consequently need money to offset the impact it would have on their finances.
“As far as I know, there weren’t too many people operating [to offer life insurance settlements and loans] in Nova Scotia, and I don’t know if they’ve had any complaints,” he said. “I didn’t find out about the bill until after it was passed; if I’d known about it, I would’ve offered some comments.”
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