Category: Elder Law Insurance Issues
In our final blog on this topic (for now), we wanted to look at Canada’s perspective in regard to viatical settlements. At page 10 of the report produced by the Canadian Centre for Elder Law Studies, the study reviews the current law in Canada.The authors note that, in Canada, laws regulating the business of insurance and insurance contracts are primarily found in provincial and territorial statutes. An example of the legislation prohibiting trafficking in life insurance policies is set out in Section 26 of the British Columbia Insurance Act, where the legislators state that any person other than an insurer or its authorized agent … who traffics or trades in life insurance policies for the purpose of procuring the sale, surrender, transfer, assignment, pledge or hypothecation of them to himself or herself or any person, commits an offence against this Act.
The authors of the study comprehensively set out arguments for and against legalizing viatical settlements (see pages 22 to 30 of the report).
As we review the study paper prepared by the Canadian Centre for Elder Law Studies on viatical settlements, we see that the authors note that a typical viatical settlement contains six steps.
Firstly, the holder of a life insurance policy initiates the transaction by filling out and submitting an application and providing any required supporting documentation to an interested company. The policyholder, him or herself, is typically referred to as the "viator" and the company is typically referred to as a "viatical settlement provider" or "VSP" (see page 3 of the report). To even be considered for a viatical settlement, a viator must have diminished life expectancy.
Secondly, the viator must submit medical and insurance records to the VSP for evaluation.
Thirdly, the VSP reviews the information and essentially determines whether or not the viator is eligible for a viatical settlement. This third step is, of course, a combination of insurance underwriting and medical analysis. In the U.S. experience, both whole life and term life insurance policies are acceptable, as are group life insurance policies. The expectation is that the policy is in good standing and that it not restrict assignment. Furthermore, it is expected that the policy has been in full force for at least two years.
Continuing with our review of the Canadian Centre for Elder Law Studies’ paper on viatical settlements, we note that the paper is broken down into 7 parts, starting with a brief introduction and an examination of typical viatical settlements. There is also a review of American academic articles and the study looked at the historical developments of viatical settlements in the U.S.
The study goes on to examine the current law in Canada and looks at leading policy arguments for and against removing the legal barriers to viatical settlements in Canada. The study also examines in detail the leading Canadian model for law reform drafted in 2001 by Ontario’s Financial Services Commission. The last two parts of the study include a review of several issues for reform and a conclusion to the study paper.
The origins of the project arose out of the Program Committee of the British Columbia Law Institute, whereby they identified examining the possibility of legalizing and regulating viatical settlements as an innovative area for legal reform.
After having reviewed the study paper on viatical settlements, it is clear that, while this is an innovative area of legal reform, certainly in the United States, the concept of viatical settlements is a growing trend and one that will no doubt be considered over the next few years as the increase in population puts pressure on the market forces.
Given that viatical settlements are rare in Canada, the study paper looked at the elements of a typical viatical settlement from the United States as providing the reference point. Again, while there are different approaches in the United States, the study notes (at page 3) that one commentator who recently reviewed the American market concluded that the typical viatical settlement contains six steps.
We will look at the six steps in our next blog.
All the best, Suzana and Ian. ——–
The Canadian Centre for Elder Law Studies has produced an excellent study paper on viatical settlements.
In the executive summary, the study paper defines a viatical settlement as a transaction in which an insured person with diminished life expectancy transfers the entitlement to receive the death benefit under the policy of insurance to another person. This other person agrees immediately to pay the insured person an amount that is less than the face value of the death benefit and undertakes to pay the premiums for the insurance policy as they come due. A
s is noted in the executive summary, in most Canadian jurisdictions, legislation directed at trafficking in insurance policies (which has its origins in the Depression), renders viatical settlements illegal. There is a small viatical settlement industry based in some of the provinces that lack this legislation. However, in the U.S., the viatical settlement industry has been very active and has, for example, focused on AIDS patients and others suffering from terminal diseases. As such, the viatical settlement industry has expanded considerably.
The aim of the study paper produced by the Canadian Centre for Elder Law Studies was to provide the groundwork for law reform in this area. More on the details of the study in our next blog.
All the best, Suzana and Ian. ——–
READ THE TRANSCRIBED PODCAST
During our podcast, we discussed the following legal issues:
(i) constructive trusts;
(ii) specific devices and bequests;
(iii) life insurance;
(iv) the description of beneficiaries;
(v) trusts/life interests;
(vi) the selection and powers of trustees, including the power to encroach; and
(vii) ademption. ——–