A life insurance settlement (or life settlement) is a transaction which involves the sale of a life insurance policy for less than it’s face value to third party investors. The initial cost, paid by the third party investors, is returned with profit through the insurance benefits that are paid when the insured dies. Life settlements are illegal in the majority of provinces in Canada due to legislation designed to prevent people from trafficking in life insurance policies. This law was passed during the Great Depression as many people, in financial desperation, were selling their policies at a fraction of their actual worth.
The closest variation to life settlements that is legal in Canada is a viatical settlement, and it is only available in some jurisdictions. The defining difference between the two is that a viatical settlement is for the terminally ill. For those facing financial hardship due to their medical condition, selling their policy may be an ideal option to supplement their income. Even though this market is heavily regulated where legal in Canada, it is recommended that you seek the council of a lawyer before signing over your policy.
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