Did you know you can donate your life insurance to charity? Here are

Adella Miesner

If your policy has limited use for you, you can maximize its impact by donating to a cause you care about

Article content

Life insurance can be an important part of protecting your family and their future. There are certain instances when you may no longer require your insurance policy. Maybe your dependents have reached an age where they no longer rely on you, or your financial status has grown to a point where a life insurance policy is no longer of great use.

Advertisement 2

Article content

Instead of cancelling your policy outright, you might consider donating your life insurance policy to a charity that is important to you. Not only are you able to receive a tax benefit for your donation, but you can also know that you’re continuing to support a cause that’s important to you.

There are four ways to donate your life insurance benefit to a charity, each of which has specific implications for you, your estate and your taxes.

Charity becomes the owner of a life insurance policy

If you have a term-life policy – that is, a policy that covers you for a certain number of years – that you’re not going to renew, gifting the benefit can optimize the investment you’ve made over the years.

Making the charity the irrevocable owner of your policy has a lot of advantages.

Advertisement 3

Article content

Don’t Miss

The main one being that you’ll receive a tax receipt to use in the year of the donation. The amount of this receipt is based on the fair market value of your policy which refers to the current value of your policy, taking into account factors like your age and health. This is generally greater than the cash surrender value (CSV), which is the value after a surrender fee is deducted.

If you make a charity the owner of your life insurance policy, they will be responsible for paying any ongoing premiums. If you choose to continue paying the premiums yourself, you can receive a tax receipt for the payments you make.

Advertisement 4

Article content

If you’re unable to claim the entirety of the tax credit in that year, the good news is you can carry it forward for up to five years.

When the policy matures, your chosen charity will receive the full benefit of your policy.

Name a charity as beneficiary

If you want your estate to have the benefit of a charitable tax receipt, naming the charity as the beneficiary in your life insurance policy is the optimal way to go.

In this instance, you will retain the ownership of the policy, and are free to name as many beneficiaries as you want. If the charity you name as a beneficiary isn’t irrevocable, that is they are not permanent, you can always remove them at a later date.

Upon your passing, the charity you have named will receive your policy’s benefit, while your estate will receive a tax receipt for the donation amount.

Advertisement 5

Article content

Take out a new policy in the name of the beneficiary

Another way in which to donate a life insurance policy’s death benefit to a charity is by taking out a new policy and naming the charity as the beneficiary from the start.

In this case you will be responsible for paying the premiums on a year-by-year basis. At the same time, each year you will receive a tax receipt from the charity to use against your income.

Charitable insured annuity

Annuities provide steady streams of income for individuals when they retire. You pay into it in advance, then will receive a designated amount as an income when the annuity period starts.

When you purchase a charitable insured annuity, you use part of the annuity’s income stream to purchase a life insurance policy. This life insurance policy will have the charitable organization as the named beneficiary.

Advertisement 6

Article content

Each year, part of your annuity will pay for the premiums on your life insurance policy. But because the policy has a charity named as a beneficiary, you can receive a tax receipt for the amount of your premiums.

This method gives you the benefit of receiving a steady retirement income and making regular and continued charitable donations.

By gifting your life insurance benefit to a charity, you can help an organization you support to continue to grow and thrive even after you’re gone. Speak to your financial advisor or charity of choice to find out what options are available to you.

This article provides information only and should not be construed as advice. It is provided without warranty of any kind.

Advertisement

  1. Contestant on survival series Alone gained 60 pounds for show

    Juan Pablo Quiñonez, of Manitoba, is one of 10 contestants vying for the $500,000 prize.

    Juan Pablo Quiñonez of Pinawa, Man. is one of two Canadian participants on the History show Alone.
  2. Style Q&A: Shared grief inspires mother-daughter duo to create self-care brand

    Vancouver-based entrepreneur created self-care startup alongside her mother Radmila as the duo both grappled with the loss of the Juristovski family patriarch.

    Nala deodorants.
  3. Advertisement 1

  4. Best chocolate for baking and eating, according to a taste expert

    Beth Kimmerle, taste expert, shares her best practices for buying chocolate

    How to select high-quality chocolate.
  5. 25 best online deals in the Canadian retail space right now

    Our Place, DAVIDsTEA and Calvin Klein, to name a few

    This week in Canadian ecommerce deals.
  6. Style File: Beach-ready brights

    Hit the beach, lake, pool or backyard inflatable in style this summer season with one of these fashionable finds.

    Style File: Beach-ready brights

Comments

Postmedia is committed to maintaining a lively but civil forum for discussion and encourage all readers to share their views on our articles. Comments may take up to an hour for moderation before appearing on the site. We ask you to keep your comments relevant and respectful. We have enabled email notifications—you will now receive an email if you receive a reply to your comment, there is an update to a comment thread you follow or if a user you follow comments. Visit our Community Guidelines for more information and details on how to adjust your email settings.

Next Post

Rethinking insurance: How prevention is better than a claim

This section is Sponsored This section was created by Content Works, Postmedia’s commercial content studio. by TD Insurance Breadcrumb Trail Links Insurance FP Finance Financial Times Technology is helping insurers to minimize risks or eliminate them altogether Author of the article: Financial Times Ian Smith, Insurance Correspondent A pedestrian walks […]
Rethinking insurance: How prevention is better than a claim

Subscribe US Now