Donating to your Church through a life insurance policy can maximize tax benefits. Register file photo

Insurance a good option to aid charities

By 
  • November 6, 2016

For many people, dedicating a portion of their wealth to the Church after their death is a way of giving back to a community that has accompanied them through all stages of life.

Making that donation through life insurance is one option that could maximize tax benefits for the donor, the family and their charity of choice.

Michael Mullin is an insurance agent with Knights of Columbus. He said charitable giving through life insurance is becoming more common for his clients, the brother Knights and their families.

“A lot of people when you start talking to them about what their plans are ... they say they may have left things in their Will to a specific charity or a specific church,” said Mullin. “There is a way to do it through life insurance that is a lot cheaper to leave that same amount, plus there is a tax benefit for doing so and it doesn’t go into estate taxes and things like that because it stays outside of the Will.”

Mullin said that if the person is healthy, insurance is the best way to make the most of their bequest.

Life insurance typically avoids or reduces estate taxes and the proceeds often end up being many times more than the value of the premiums. You can also create the option of receiving current charitable tax credit or tax credit for the estate.

There are two ways in which people can incorporate life insurance into charitable giving.

One option is to transfer the ownership of the existing policy directly to the named charity, whether it is a parish, a charity program or even the local diocese. By naming the charity as the owner and beneficiary of the policy, the donor receives a federal tax receipt for the cash value upon cancellation.

Alternatively, the donor can decide to remain the designated owner of the policy and name the charity as a beneficiary. Upon the death of the insured, the charity will receive the death benefits defined in the policy.

When considering between the two options, it is always prudent to consult a financial advisor to discuss what will best suit the individual’s estate plan.

“It’s a good way of helping charities that you want to leave perhaps a larger gift than you can actually afford,” said Christine Foisy-Monk, associate director of development at Covenant House Toronto. “Let’s say you take out a $20,000 policy. You can pay for it over time, as opposed to trying to find $20,000 today.”

As a registered Catholic charity, Covenant House benefits from bequests. Although they make up only a small part of the donations, Foisy-Monk said they contribute to the general operations of its many programs for Toronto youth in need.

“That’s something the parishes and other charities look for,” said Mullin. “Every now and then, when they get a big lump sum from a life insurance policy when somebody passes away, that allows them to do projects that they haven’t been able to do. Maybe a new roof, maybe a new furnace that they’ve been trying to save up for.”

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