Last time we talked about donating shares to a charity, such as the Westbrook Education Fund or the Copper Ridge Conference Centre, and you explained the tax advantages for the person who donates shares.
Could you now tell us about how a donation may be made through a life insurance policy?
Yes, like share donation, donating using a life insurance policy might not be well known or understood by everybody.
In this type of life insurance policy, a charity, such as the Westbrook Education Fund or the Copper Ridge Conference Centre, would be designated as the irrevocable beneficiary and the policy would be assigned to the charity as the owner. The donor would continue to be the payor.
So, what does somebody who donates this type of life insurance policy get for their tax receipt?
Well, for each year you pay premiums on your life insurance policy, you will receive an income tax receipt for the total amount you paid in premiums that year.
And of course, when you die, the charity receives the amount of your life insurance.
Yes, but by that time, you won’t be worrying about tax receipts!
Quite so!
There is one very important thing to remember about this method of donation though. If the charity — in our case, the CRCC — is not the designated irrevocable beneficiary, the premiums paid by the donor may not be tax deductible.
However, when the insured person dies and the charity receives part or all of the life insurance proceeds, the amount paid to the charity may then become tax deductible for the estate of the donor.
Yes, this is certainly something you should consider carefully.
I have heard it is sometimes more advantageous for you to donate through a life insurance policy than through your will. Why would that be?
Well, a will may always be challenged or contested by other heirs. And sometimes, contested wills take a very long time to resolve. But an insurance policy is not open to such challenges.
Are there any other advantages of donating through a life insurance policy than through your will?
Yes, the processing time is the big one. It can sometimes be quite a while before a will is finalized (‘probated’ is the technical term) and a bequest to a charity is actually made. The proceeds from life insurance policies, on the other hand, are usually paid out fairly soon after a claim on the policy is filed.
So, the charity benefits from your donation sooner rather than later?
Exactly. As with stock donations, donating to the WEF or the CRCC through a life insurance policy is just another method our donors may wish to consider in the generous assistance they provide us.