Sun Life Financial says it will not accept life insurance applications that are part of non-recourse financing arrangements.
In a note to advisors, the insurer said it had recently become aware of non-recourse premium financing arrangements being offered on life insurance policies in Canada. These are situations in which the client takes out a loan which is then used to pay the premiums on a life insurance policy. The debtor’s only collateral is the insurance on his or her life.
"In such circumstances, the lender has entered this arrangement purely out of self interest, and will only profit on the client's death when the death benefit is paid," explains Sun Life. "This is why it is called non-recourse. Our risk management policy prohibits us from knowingly participating in non-recourse premium financing loans." Sun Life recommends that advisors encourage clients to obtain legal advice before pursuing this sort of arrangement with another insurer.
However, the insurer does say that it will consider policy financing that involves recourse loans, where a policy's cash surrender value and other assets are used as collateral, and where the lender can request repayment at any time.
"We are currently reviewing our application questions and contract wording to determine the best way to guard against applications based on a non-recourse premium financing arrangements," concludes Sun Life's memo.
