The Benefits of a Gift of Life Insurance (Part 1)
Thanksgiving is often the time of year when we consider the abundance we have and reflect on the needs of others. Some of us extend our generosity as part of our Thanksgiving traditions; researching opportunities to give and then writing a cheque, participating in a food collection drive, or spending some time volunteering. As wonderful as giving back like this can be, we are sometimes left wondering what more we could do to help our favourite charities.
Using life insurance as a gift to charity can be a very practical way to leave a legacy of support for the causes you care about. There are two different options for structuring a gift of life insurance, and each offers slightly different benefits.
Transferring Ownership of a Life Insurance Policy to Charity
The first option is to transfer ownership of the life insurance policy to charity. This allows you to receive an immediate charitable donation receipt for the fair value of the policy at the time of the transfer. The charity becomes the owner of the policy and is responsible for paying any ongoing premiums. Many people choose to continue paying the premiums and receive donation receipts for these payments.
Many years ago, John took out a life insurance policy to ensure his family would be protected financially in the event of his death. As time marched on and he approached retirement, John realized that the original purpose for the insurance policy (income replacement) was no longer required, so he decided the policy would do more good if he donated it to charity. He contacted Abundance Canada to help.
Including a Gift of Life Insurance in a Generosity Plan™
Because John still had significant taxable income, he needed an immediate donation receipt. Therefore, John transferred ownership of his life insurance policy to Abundance Canada. As part of his Generosity Plan™, he will also make an annual donation to Abundance Canada equal to the yearly premium on the policy and will receive a charitable receipt for the gift. John is excited that by donating his life insurance policy today, he is establishing a future gift that will support his favourite charities when the policy matures. He has provided recommendations to Abundance Canada indicating how much each organization will receive and over what period of time. When John dies, Abundance Canada will distribute the proceeds from the life insurance policy according to his recommendations.
Transferring ownership of a life insurance policy is a great donation option for people who no longer need the policy for estate planning purposes and could benefit from the immediate charitable receipt.
In Part 2, I will look at the second option, maintaining ownership of your insurance policy but naming charity as the beneficiary.
Contributed by Rick Braun-Janzen
Director of Gift Planning