Can I Sell My Term Life Insurance Policy In Canada?

Writing by Posted On: April 5, 2023
Rakibul Hasan
Chief Editor of - Free Insurance Tips

Meet Rakibul Hasan, the visionary leader and founder of Freeinsurancetips. With over a decade of experience in the insurance sector, Rakibul is dedicated to empowering...Read more

Term life insurance policies are a popular choice for many Canadians looking to secure their financial future. These policies are designed to provide coverage for a specific term, typically ranging from 10 to 30 years. While term life insurance policies offer a range of benefits, including affordable premiums and flexible coverage options, many policyholders may wonder if they can sell their policy for a lump sum of cash.

The good news is that it is possible to sell your term life insurance policy in Canada. Known as a life settlement, this option allows you to sell your policy to a third-party buyer for a lump sum payment. However, before you decide to sell your policy, it’s important to understand the process, the potential risks, and the benefits of life settlements. In this article, we’ll take a closer look at the process of selling your term life insurance policy in Canada, and help you make an informed decision about your financial future.

Yes, you can sell your term life insurance policy in Canada. This is known as a life settlement, where you sell your policy to a third-party buyer for a lump sum payment. However, not all policies are eligible for sale, and you may not receive the full value of your policy. It is important to research and consult with a financial advisor before making any decisions about selling your life insurance policy.

Can I Sell My Term Life Insurance Policy in Canada?

Can I Sell My Term Life Insurance Policy in Canada?

Term life insurance is a popular form of life insurance that provides coverage for a specified period of time. Many Canadians opt for term life insurance policies to ensure that their loved ones are protected in the event of their untimely demise. However, circumstances can change, and individuals may find themselves in need of cash before their term life insurance policy expires. This leads to the question: can I sell my term life insurance policy in Canada?

Understanding Term Life Insurance Policies

Term life insurance policies are designed to provide coverage for a specific period, ranging from 5-30 years. The policyholder pays a premium for the coverage, and in the event of their death within the policy term, their beneficiaries receive a lump sum payout. However, if the policyholder outlives the policy term, the coverage ends, and there is no payout.

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Benefits of Term Life Insurance Policies

Term life insurance policies offer several benefits, including:

  • Affordability: Term life insurance policies are generally more affordable than permanent life insurance policies.
  • Flexibility: Policyholders can choose the term length that best suits their needs.
  • Protection: Term life insurance policies offer protection for loved ones in the event of the policyholder’s untimely death.

Drawbacks of Term Life Insurance Policies

There are also some drawbacks to term life insurance policies, including:

  • No cash value: Term life insurance policies do not accumulate cash value over time.
  • No payout if the policyholder outlives the policy term: If the policyholder outlives the policy term, there is no payout.

Selling Term Life Insurance Policies in Canada

In Canada, it is possible to sell your term life insurance policy, but the process can be complex. There are two main options for selling your policy: a life settlement or a viatical settlement.

Life Settlement

A life settlement involves selling your life insurance policy to a third party for a lump sum cash payment. The third party becomes the new owner of the policy and is responsible for paying the premiums. When the policyholder dies, the new owner receives the death benefit payout.

Viatical Settlement

A viatical settlement is similar to a life settlement, but it is specifically designed for individuals with a life-threatening illness. In a viatical settlement, the policyholder sells their life insurance policy to a third party for a lump sum cash payment. The third party becomes the new owner of the policy and is responsible for paying the premiums. When the policyholder dies, the new owner receives the death benefit payout.

Pros and Cons of Selling a Term Life Insurance Policy

There are several pros and cons to consider when deciding whether to sell your term life insurance policy.

Benefits of Selling a Term Life Insurance Policy

  • Immediate cash: Selling your policy can provide you with immediate cash when you need it most.
  • No more premium payments: When you sell your policy, you are no longer responsible for paying the premiums.
  • Flexibility: You can use the cash you receive from selling your policy in any way you choose.

Drawbacks of Selling a Term Life Insurance Policy

  • Reduced payout: When you sell your policy, you will receive less than the death benefit payout.
  • Tax implications: The lump sum cash payment you receive may be subject to taxes.
  • No more coverage: When you sell your policy, you are no longer covered by life insurance.

Conclusion

In summary, it is possible to sell your term life insurance policy in Canada, but it is important to consider the pros and cons before making a decision. Selling your policy can provide you with immediate cash when you need it most, but it also means you will no longer be covered by life insurance. It is important to explore all your options and consult with a financial advisor before making a decision.

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Frequently Asked Questions

Can I Sell My Term Life Insurance Policy in Canada?

Yes, you can sell your term life insurance policy in Canada. This is known as a life settlement. A life settlement involves selling your policy to a third party for a lump sum payment. The third party becomes the new owner of the policy and is responsible for paying the premiums and collecting the death benefit when the policyholder passes away.

It’s important to note that not all life insurance policies are eligible for a life settlement. Generally, policies that are eligible must have a face value of at least $100,000 and the policyholder must be over the age of 65. Additionally, the policy must be in force and the premiums must be up to date.

What Are the Benefits of Selling My Term Life Insurance Policy?

There are several benefits to selling your term life insurance policy. First, you can receive a lump sum payment that can be used to pay for medical expenses, long-term care, or other expenses. Second, you no longer have to worry about paying the premiums on the policy. Third, you can use the money to invest in other assets or to leave as an inheritance to your loved ones.

However, it’s important to carefully consider the decision to sell your policy. You will no longer have life insurance coverage, which could leave your loved ones without financial protection in the event of your death. Additionally, the lump sum payment you receive will likely be less than the death benefit of the policy.

How Do I Sell My Term Life Insurance Policy?

If you’re interested in selling your term life insurance policy, you should first consult with a financial advisor or insurance professional. They can help you determine if a life settlement is the right option for you and can provide guidance on the process.

Once you’ve decided to move forward with a life settlement, you’ll need to work with a life settlement provider. The provider will evaluate your policy and make an offer to purchase it. If you accept the offer, you’ll transfer ownership of the policy to the provider and receive a lump sum payment in return.

What Happens to My Policy After I Sell It?

After you sell your term life insurance policy, the new owner of the policy is responsible for paying the premiums and collecting the death benefit when the policyholder passes away. You will no longer have any rights or obligations related to the policy.

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It’s important to note that the new owner of the policy may sell it to another party in the future. This means that the death benefit may be paid to someone other than your intended beneficiaries.

Is Selling My Term Life Insurance Policy Taxable?

The tax implications of selling your term life insurance policy will depend on several factors, including the amount you receive for the policy and your tax bracket. Generally, the lump sum payment you receive will be taxed as ordinary income.

However, if the policy is considered a “modified endowment contract” (MEC), the tax implications may be different. A MEC is a life insurance policy that has been funded with too much cash value in relation to the death benefit. If your policy is a MEC, any proceeds you receive from selling it may be subject to income tax and a 10% penalty.

As a professional writer, I understand the importance of making informed financial decisions. If you’re considering selling your term life insurance policy in Canada, it’s crucial to weigh the pros and cons before making a final decision. While selling your policy can provide immediate financial relief, it may also impact your long-term financial goals and leave you without life insurance coverage.

Before selling your policy, it’s essential to speak with a financial advisor or insurance professional to understand the potential consequences. Factors such as your age, health, and current financial situation may impact the value of your policy and determine whether selling is the right decision. While there are options available for selling your policy, it’s critical to approach the process with caution and make sure you fully understand the terms and conditions of any agreement you enter into. Ultimately, whether you decide to sell your term life insurance policy in Canada is a personal decision that requires careful consideration, and seeking professional advice can help you make the best choice for your unique circumstances.

Rakibul HasanChief Editor of - Free Insurance Tips

Meet Rakibul Hasan, the visionary leader and founder of Freeinsurancetips. With over a decade of experience in the insurance sector, Rakibul is dedicated to empowering individuals to make well-informed decisions. Guided by his passion, he has assembled a team of seasoned insurance professionals committed to simplifying the intricate world of insurance for you.

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