DeDominicis: Leaving a charity the gift of life Insurance

Life insurance is a great way to give a potentially sizeable gift to a charity, without it costing you a fortune.

VanessaNot only does life insurance enable you to benefit a charity after your death, but you can also receive substantial tax savings, depending on how you structure your gift of life insurance.

You can either set it up so that you own the life insurance policy yourself with the charity as your named beneficiary thereunder, or you can set it up so that the charity owns the policy on your life, and is the beneficiary thereunder as well.

If you are doing it in the latter way, provided the charity has a charitable registration number, the premiums you pay for the life insurance policy each year qualify as a tax-deductible donation on your annual income tax return—giving you the benefit of instant tax savings.

Some people prefer to own the life insurance policy on their own life themselves and name the charity as the beneficiary. You could also name your estate as the beneficiary and then deal with the life insurance through your will, but this will incur probate taxes of approximately 1.4 per cent and delay the gift giving until probate has been granted.

The benefit of this arrangement is that it allows you to easily change the charity that will receive the benefit, if your affiliation changes during your lifetime.

However, if you own the life insurance policy and name the charity as the beneficiary, in terms of tax consequences, you aren’t entitled to a charitable donation tax credit for the life insurance premiums you pay. That being said, upon your death the charity will issue a tax receipt for the life insurance proceeds it receives. The charitable tax credit may help reduce the income tax payable by your estate: For example if your estate owes capital gains tax/taxes on your RRSPs etc. So there is still some benefit to structuring your life insurance gift this way.

Either way, life insurance is a great way to give a potentially sizeable gift to a charity, without it costing you a fortune—other than the monthly premiums.