A Guide to Selling Your Life Insurance Policy in Canada

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Article Contents
Picture of By <span>Matthew Roberts</span>
By Matthew Roberts

Updated on September 19, 2024

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Picture of By <span>Matthew Roberts</span>
By Matthew Roberts

Updated September 19, 2024

Visit author page

3 minute read

Article Contents

People purchase life insurance to safeguard their family’s financial security in case of death. So, why would you want to sell a life insurance policy? Perhaps you’re dealing with a cash flow crisis or can no longer afford to pay for premiums. Whatever the case, knowing whether you can sell your life insurance policy in Canada can come in handy.

Selling a Life Insurance Policy at A Glance

  • Selling a life insurance policy in Canada is possible but highly limited. Whether you can sell your policy will depend on your age and health, where you live, and your life insurance company.
  • Selling a life insurance policy makes the most sense for someone who can no longer afford to pay their premiums or who has cash flow problems.
  • If you can’t sell your life insurance policy, you can let it lapse, transfer it, or negotiate rates with your insurance company.

Can You Sell Your Life Insurance Policy in Canada?

You can sell your life insurance policy in Canada, but only in some regions. For instance, New Brunswick and Nova Scotia recently rescinded the ability to sell a life insurance policy. In addition, the Canadian Life and Health Insurance Association (CLHIA) continues to lobby against its legality, as it “exposes senior policyholders to financial abuse.”

However, in Ontario, a private member’s bill is pushing to open life insurance to the secondary market. 

Still, whether you can sell your life insurance policy in a legal state will depend on the conditions of your policy and your insurance company. 

When Should You Sell Your Life Insurance Policy?

Selling a life insurance policy may seem counterintuitive, but there are many reasons why someone might do so:

  • They can no longer afford the premiums. Seniors lacking retirement funds may struggle to pay their insurance premiums and benefit more from selling them.
  • They need the cash. Someone experiencing cash flow problems may need to sell their life insurance policy to access its cash component.

Who Can Buy Your Life Insurance Policy?

So, you’ve decided to sell your life insurance policy, but who can buy it? Third parties, like other insurance companies, might buy your life insurance policy as an investment. You can also sell your policy to another individual, such as a child, business partner, or friend.

Ultimately, you can sell your policy to virtually anyone, given that both parties have written consent.

How to Sell Your Life Insurance Policy in Canada

Now that you’ve decided to sell your life insurance policy, here’s how to do it:

1. Switch to permanent life insurance.

If you have term life insurance with a convertibility option, you must first undergo this process to sell it. If your policy doesn’t have a conversion rider, you can’t sell it.

2. Understand the tax implications.

Death benefits on life insurance policies aren’t taxed, but sales on life settlements are. When you sell your life insurance policy, you’ll owe income tax for the amount you receive.

3. Find a reputable broker.

Finding a life insurance policy buyer is difficult – you can’t just list it online and wait for a bid. Hiring a broker can make the scouting process more accessible, but it takes time to compare rates. Some brokers charge commission rates as high as 40%, while others charge as low as 10%. 

4. Undergo the application process.

You must complete an application for each life insurance settlement and grant the settlement company or third party permission to request information about your policy and health.

5. Provide documentation.

Once you’ve completed the application process, gather the appropriate documentation, such as medical records from your healthcare provider. Age and health play a significant role in determining how easy it will be to sell your policy. Younger, healthier people often get lower returns, whereas older people (often above 65) have better chances selling their policies.

6. Wait for appraisal.

You can’t just sell your life insurance policy for your desired sum. Underwriters will determine your policy’s market value and decide whether the investment is good or bad. They might consult medical experts regarding your health and seek any signs of fraud.

7. Receive the offer.

Assuming the underwriters determine your policy is suitable for purchase, they’ll extend an offer, which you can accept or decline.

Alternatives to Selling Your Life Insurance Policy

Selling your life insurance policy may not be the most cost-effective option, even if you need the money. Remember, hiring a broker will also cost you. Here are some less complicated options you might consider.

FactorsWhen you should do it:When you shouldn’t do it:
Canceling the
Policy
if your policy is new and
you can let it lapse
if you’ve been paying premiums
for years or even decades
Using the
Accelerated
Benefit Rider
if you become diagnosed with a
terminal illness (you can access
between 25% and 95% of the
entire sum)
if your policy doesn’t have an
accelerated benefit rider and
you still have to purchase it
Requesting to
Reduce the
Coverage
Amount
if you have a lenient insurance
company that may understand
your circumstances
if you’ve already requested to
reduce the coverage amount
before and were denied
Transferring
your Policy
if selling a life insurance policy is
legal in your state and you can
transfer it to a relative, such as a
spouse, parent, or child
if selling a life insurance policy
isn’t permitted in your state or
if you’re transferring it to a
non-family member who will
experience financial loss
Getting a
Policy Loan
if you have a whole life insurance
policy that allows you to
access the death benefit
amount through a policy loan
if accessing the death benefit
will put you in more debt, as the
loan will accrue interest (if there
is an outstanding balance when
the insured dies, the company
will deduct this from the death benefit)
alternatives to selling your life insurance policy

Key Advice From MyChoice

  • Consider other, less complicated options like transferring your policy before opting to sell it. You may end up spending more money on hiring a broker or struggle to find a buyer. 
  • It’s better to prepare for retirement rather than purchase a life insurance policy you may not be able to afford in the future. When shopping for a life insurance policy, remember to compare quotes and get the best deal for your needs.

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