The Gift of Life Insurance

We all have passions that fill our lives, be it the arts, health care, education, poverty or the environment. We all have that internal need to give back to those institutions that drive our passions. Some will donate annual gifts towards the operation of these organizations. Others will volunteer their time and provide service. Some will promise future gifts and few will do it all.

We work with our clients to maximize their wealth and reduce their tax liabilities. Charitable giving strategies allow individuals to support their favourite organizations by creating lasting legacies. These same strategies not only benefit their charities but also donors by either reducing or eliminating personal tax liabilities in the current year or the estate’s future tax liability.

Life insurance gifts allow donors the ability to not only give today but also tomorrow. This gift allows the donor to build legacy strategies that will create a substantial gift to their chosen charity using either additional disposable income or a portion of investable assets which might not be spent. These major gifts also allow us to maximize tax reduction in the present and future years. If an individual supports a charity, then a tax credit for that donation is applied. In Ontario, the blended Federal and Provincial tax credits for gifts over $1000, is approx. 40%. For large gifts, like life insurance benefits, the applied credit could be in the tens or hundreds of thousands of dollars. For example, a $1,000,000 life insurance gift creates a $400,000 tax credit effectively reducing or eliminating most estate liabilities.

Let’s focus on three main life insurance gift strategies used by donor and charities. The most popular and easiest method transfers the existing insurance policy to the charity. The policy owner and beneficiary is changed to the donor’s charity. The second strategy involves the purchase of a new life policy naming the charitable organization as the policy owner and beneficiary. The third, uses the process in either of the first two strategies but allows the donor to maintain ownership of the policy and names their charity as the beneficiary.

Donors need to work with their financial advisors to determine which strategy is best for them. The strategy is selected by determining when the donor will require the tax receipt – either in the current year or for future estate liabilities. The first and second strategies benefit the donor in the current and future years but there is no value for the estate. The third approach benefits the estate only. The following examples focus on the first two strategies. We will look at the third gift strategy next month.

Life Insurance Gift Example – 10yr Donation Strategy

Male Donor (45 yrs old)

Annual Charitable Receipt***$20,000$30,000
Future Potential Gift*$1,024,300$1,537,100
Total Gift Receipted$200,000$300,000
Charitable Gift Impact512%512%


Female Donor (45 yrs old)

Annual Charitable Receipt***$20,000$30,000
Future Potential Gift**$1,279,400$1,919,900
Total Gift Receipted$200,000$300,000
Charitable Gift Impact639%639%
NOTE – this proposal is for illustrative purposes only and all amounts are subject to change. These illustrations use a participating life insurance policy and assume Empire Life’s current dividend scale for all years. Future annual dividends are not guaranteed.
* Age 85
** Age 90
*** Annual tax receipt issued only when charity is owner and beneficiary


Gift Example – transfer existing life policy

Male Donor (65 yrs old)

Life Insurance Policy$192,000
Gift Receipt*$96,400
Annual Charitable Receipt**$1100
Future Potential Gift***$328,400
NOTE – this proposal is for illustrative purposes only and all amounts are subject to change. These illustrations use a participating life insurance policy and assume Empire Life’s current dividend scale for all years. Future annual dividends are not guaranteed.
* one-time tax receipt for policy value
** tax receipt issued for annual premiums paid – only when charity is owner and beneficiary
*** Age 85
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Magid Girgis

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