Donation Of Insurance

Life insurance

Donate the gift of insurance

If you own an existing life insurance policy that has outlived its original purpose, you can actually consider donating it to charity. In fact, since 2007, donations of existing life insurance policies to registered charities may be receipted at fair market value. This can lead to significant tax savings — not to mention a valuable gift to charity.

There are a number of considerations to take into account when donating an existing life insurance policy to charity.

  • Determine if the policy has value. The policies that have the greatest value are long-standing and have built up cash value. The cash surrender value is typically the best indication of value.
  • Select a charity. The charity must be willing to accept, and provide a tax receipt for, the gift.
  • The valuation must be completed using guidelines set out the Canada Revenue Agency. These guidelines take into account factors such as age, terms of the policy, health of the donor, and replacement cost. The valuation is generally done by a qualified actuary.
  • Unless the policy is paid up, the ongoing premiums will still need to be paid. Premiums are typically covered by the donor, as most charities do not have the resources for expenses of this nature. Each payment is treated as a donation for which the donor will receive a tax receipt.
  • When the policy is donated, it may trigger taxation for the donor. The donor owes tax on the difference between the adjusted cost base and cash surrender value. If there is no cash surrender value, there is no tax owing. (Generally, the receipt for the policy should more than offset the tax owing.)