Investing in a Sure Thing: Death

The latest investment trend to hit the Canadian market is trading in life insurance policies because baby boomers have policies to sell and others have money to invest. Companies are popping up to capitalize on this alternative form investment.

It is primarily Americans, and usually American seniors, who sell because they can’t afford the premiums, don’t have anyone to leave their policy to or have multiple policies.

In Canada, not everyone is legally able to sell their own life insurance policies. Residents of Saskatchewan, Quebec, Nova Scotia and New Brunswick are legally able to do so but Ontarians are prohibited from doing so by the Insurance Act, though they’re able to invest in the policies of those who can.

You can expect to get 20 to 30 percent of the value of the life insurance policy, if you are selling yours. Depending on the type of policy you own, that’s compared to 10 percent if you surrendered it to your insurance company or nothing if you let the policy lapse.

It’s a solid form of investment that market driven. It’s also a guaranteed return – everyone dies. Policies are usually bought in pools by a separate institution, so there’s no direct contact between investor and policyholder, so you need not feel icky about the idea.

There’s a large supply of life insurance policies available in the United States which should continue to grow as the population ages. American baby boomers make up an estimated $100 billion in life insurance coverage in the U.S. market.

The identity of the person selling the policy is not kept confidential to avoid fraud. That means medical records and the person’s policy history can be seen by the new owner. The new owner is also free to resell the policy – there’s no limit to how many people might see those records.

Unlike other forms of investment, monitoring the process of this type of investment is in poor taste. A person who has sold their policy typically receives monthly phone calls inquiring if they are still alive.