Reverse Mortgages and Life Settlements in Ontario in 2017

Article by: Daniel Kahan ASA

In October 2017 a Private Members Bill No. 162 was introduced to LEGALIZE Life Settlements in Ontario and allow seniors the right to SELL their existing life policies (after they had been in force for 3 years) to a Third Party Investor (subject to a 10 day cooling-off period). This Bill passed its Second Reading and was referred to the Committee of the Whole House. As of December 14, when the Legislature went into Recess, the earliest this can happen is after February 20 and before the start of the June Election Campaign in April.

Nobody has ever questioned the right of Ontario seniors to downsize and sell their homes to whomever gives them the best price OR to stay in their homes and if they are ASSET RICH and INCOME POOR to take out a Reverse Mortgage (subject to Independent Legal Advice). However when it comes to disposing of their permanent life policies , because of the 1933 Section 115 of the Ontario Insurance they can only “sell” their life policy back to their own life insurer for its Cash Surrender Value OR borrow against this CSV from a Bank (if they don’t want to get taxed by taking out a Policy Loan).

So Bill 162 is a 21st Century initiative sponsored and promoted by a new Canadian Life Settlement Industry Association to MODERNIZE the Ontario Insurance Act and give Ontario Seniors the same FREEDOMS they now enjoy when it comes to Same Sex Marriages or buying wine in (some of) their local supermarkets.  

However sec. 115 of Ontario Insurance Act also prohibits the offering of “reverse mortgage” Life Loans and there is nothing in this new Bill 162 to LEGALIZE this type of Loan secured by a Collateral Assignment of the life policy, where the Loan to Value is based on the current age and health of the policyholder and his estimated future Life Expectancy.

I have therefore contacted and met with Jack MacLaren, the lone MPP of the new Ontario Trillium Party and he has agreed to sponsor an Amendment to include Life Loans in Bill 162 if and when the Committee of the Whole House meets after February 20.

Based on the 2001 CAIFA (now Advocis) Stakeholder Submission to the DRAFT FSCO Viatical Settlements Regulations produced after the passage of Schedule G of the Red Tape Reduction Act in Dec. 2000 and a 2004 CARP 50Plus Magazine article reprinted last week by the Monitor Telegram , the “Canadian” Loan approach is PREFERABLE to the “US” Settlement approach from a Consumer perspective.

When it comes to Living Benefits and Viatical Settlements (which are specifically EXCLUDED from Bill 162) I think it would be worth reprinting the Executive Summary from the 1997 Ontario Ministry of Health Feasibility Study as nothing has changed since then ( expect that AIDS is no longer a Terminal Illness) and if in July 2018 Marijuna will only be sold by the LCBO, then why not have OHIP operate a NON-PROFIT Viatical Settlement Company to help reduce its expenses or improve its services ??

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