Gifts of Life Insurance

You may wish to donate a life insurance policy now to give generously and enjoy tax credits, or a planned gift of life insurance made at the time of your death will reduce your estate’s tax liability.

When you donate a life insurance policy to your favourite charity, you ensure that the charity receives the precise sum you wish to donate – the death benefit under the policy. There are three ways to donate a policy during your lifetime. The best method for you will depend on your personal circumstances and goals:

1. As your family grows more independent, you may not require as much life insurance. Instead of canceling an existing policy, you can donate it to a charity. You will receive a charitable receipt for the year in which you make the donation, based on the cash surrender value of the policy plus any accumulated dividends. You will also receive a charitable tax receipt annually for any premiums you keep paying.
2. You can donate a paid-up policy that you no longer require. You will receive a charitable receipt for the surrender value, plus any accumulated dividends (minus any outstanding policy loans.)
3. You can take out a new policy for the charity. While a new policy has no cash surrender value, if it’s structured properly, you will be eligible to receive a charitable receipt annually for the premiums you pay.

Currently, you cannot claim any tax credits during your lifetime if you name a charity as beneficiary of your life insurance (as opposed to donating the policy), or of your RRSP or RRIF. There are two ways, however, to ensure that the proceeds of your registered plan or life insurance will go to the charity of your choice and your estate will benefit from a tax credit.

• you can name your estate as the beneficiary of the plan
• make a bequest to the charity in your Will
• you can name the charity directly as the beneficiary

Either way, the gift is treated as a charitable donation in the year of your death and is eligible for a tax credit on your final tax return or the one immediately preceding your final return. There are many issues to consider before electing to name a charity as a beneficiary directly or through your Will. It’s best to consult with a financial advisor as you consider them all and choose the options that best suit you.