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Charitable Giving and Life Insurance: Part 1: Ways to Donate Life Insurance to a Charity

During the holiday season it's natural for our focus to turn towards giving to others. From a planning perspective, and if you’re so inclined and considering a charitable gift, it’s good to donate before the year-end to receive the charitable donation tax credit. As an extension to that thought, the gifting of a life insurance policy can be an attractive option for any prospective donor and an important component of their overall charitable giving strategy. In this two-part series, on “Charitable Giving and Life Insurance”, I’ll be taking a deeper dive into this interesting but somewhat overlooked topic. In this article (Part 1), we will focus on the two ways to donate life insurance to charities. In next months article (Part 2), we will dive into the various planned giving strategies available using life insurance combined with other investments.

There are many advantages to donating with life insurance. You can make a relatively large donation at death in comparison to the cost. You can make a significant gift even with limited resources. You receive a non-refundable tax credit (personal), that can either be used while living or on death, depending on how it’s structured. From the charity’s perspective, it’s preferential to receive donations as a beneficiary from a life insurance policy than directly from the estate (so to avoid potential estate litigation, claims, creditor, and liquidity issues).

(1) (a) Donate a “NEW” policy. Charity as the Owner and Beneficiary:

Here’s how it works: You purchase a new life insurance policy, make the charity beneficiary, and pay the first premium. You then donate the policy to a charity of your choice and transfer ownership of the policy to the charity. After you donate the policy to the charity, you continue to make pay the premiums. After your death the insurance proceeds are paid to the charity.

Now for the taxes. You’ll receive a charitable donation tax receipt for the PREMIUMS only. The CRA is indifferent as to whether you pay the premiums directly or donate the premium amount to the charity so that they can pay the premiums. On your death, the charity will receive the proceeds tax free. It’s important to mention that the death benefit is not a donation and will not qualify for a charitable donation tax receipt.

(1) (b) Donate a “old/existing” policy. Charity as the Owner and Beneficiary:

You can also donate and existing policy, assuming of course you no longer need it. As in the above section, the charity will become the owner and beneficiary of the policy. You simply transfer ownership of the policy to the charity and name the charity as the beneficiary (or charity can name themselves beneficiary after the transfer). You will continue to the pay the premiums and after your death the proceeds will be paid to the charity.

In addition to receiving a charitable donation tax receipt for payment of future premiums (similar to (a) above), there are two other tax issues that need to be addressed. Firstly, upon transfer, the donation will be treated as a disposition for tax purposes under subsection 148(7) of the ITA. If the CSV of the policy is greater than the ACB, you will have to include the difference in income (as a policy gain). If there is a taxable gain, the life insurance company will send you a T5 slip to report the taxable gain to you and CRA. Secondly, you may be able to receive a charitable donation tax receipt (your “initial” tax receipt) for the fair market value (FMV) of the policy on transfer. Section 248(35) of the ITA deems a policy’s FMV to equal the ACB if you acquired the policy in the previous 3 years, or if you acquired in the last 10 yrs and one of your main reasons was to donate it to a charity. If this deeming rule doesn’t apply, an actuary (not from the insurance carrier) will be needed to assess the policy’s FMV. The factors that the actuary considers in their evaluation includes: the policy CSV, policy’s loan value, face value, the state of health of the insured and their life expectancy, conversion privileges, and other terms of the policy. It’s possible for the initial charitable donation receipt to exceed the CSV of the policy.

Whether you decide to donate a “new” or “existing” policy, you essentially GIVE UP CONTROL. You can attempt to mitigate this problem by donating indirectly via a Private/Public Foundation. Although, you still give up ownership of the policy by going the Foundation route, you maintain flexibility to choose and potentially change which charity will benefit from the proceeds in the end.

(2) Donate the death benefit proceeds. You are the Owner and Charity is the Beneficiary:

You are the owner of the policy and can name the charity of your choice as a beneficiary of the policy. You also maintain the flexibility of changing the beneficiary. Following your death, when proceeds are paid to the charity, your ESTATE will receive a charitable donation tax receipt for the FULL AMOUNT OF THE DEATH BENEFIT. However, you will not receive a tax receipt for the premium paid during your lifetime. The donation tax credit may be allocated to deceased terminal tax return or the preceding year, up to 100% of net income. Any unused balance can be carried forward up to 5 years by a Graduate Rate Estate (GRE) to offset income tax payable, up to 75% of net income. You can also decide to name the estate as the beneficiary of the proceeds, but the proceeds become subject to probate fees and may be exposed to creditor claims and estate litigation claims. From a tax perspective, CRA is indifferent whether you name the charity or the estate as beneficiary.


The tax implications from a charitable donation are slightly different for individuals and corporation. Regardless of which structure is implemented (see 1 and 2 above), the donation charitable tax receipt reduces the corporate income, by the full amount of the donation (not a tax credit as is the case for individuals). Corporations can also use charitable donations up to 75% of its taxable income in that year. Also, unused amounts can be carried forward up to 5 years.

In the #2 structure, a corporate policy owner should not designate a charity as a beneficiary of its policy since the death benefit would not qualify as a donation. Upon receipt of the insurance proceeds, it may either donate to the charity or pay it out to the shareholder via the CDA (may be your estate or GRE), who can make the donation. Since the corporate tax rates are usually lower than donation tax credit for the shareholder, it’s generally more tax efficient for the shareholder to make the donation.

Other considerations:

The charity may have policies around accepting a gift of life insurance. It is important to discuss the donation of the life insurance with the charity and understand their requirements and restrictions. Although a charity can apply for the policy (with your consent, of course), its better for you to do so. One reason is privacy, regarding your medical history. Another reason is that it’s less complicated since it doesn’t require the charity’s signing officers to apply for the policy on it’s behalf. From an underwriting perspective, there’s generally a maximum amount of insurance one can purchase. As you use up your insurability for charitable purposes the amount that is available to you personally is also reduced. You should ensure that your other insurance needs are met first and that your intentions related to any donated policies are well documented for your executor and/or beneficiaries. Lastly, most carriers will expect some level of past charitable giving to match the amount of insurance for which you are applying. If there’s little to no past history, this may limit the amount the carrier is willing to approve.

Charitable giving using life insurance can be a great way to enhance your charitable giving aspirations. You can receive a tax credit and feel good about helping your charity of choice. Stay tuned for Part 2 in (Jan 2023) as we’ll explore the various planning strategies available using life insurance combined with other investments.

Tony Gallippi, B.A.S (Hons.) CFP CLU

Advanced Case Consultant


This communication reflects the views of Qualified Financial Services Inc. as of the date published. The information in this publication is for general information purposes only and is not to be construed as providing individual legal, tax, financial or other professional advice. Qualified Financial Services Inc. assumes no responsibility for any errors or omissions in the information contained herein nor for any reliance placed on such information. Please seek independent professional advice before making any decisions.


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