To learn more about how to donate life insurance to charity, including which types of policies will have value, please contact us and request our Fair Market Value information booklet.
An Introduction to Donating Life Insurance
- Retain ownership of the policy with your estate as the beneficiary. The proceeds of the insurance policy are gifted to a charity through a will.
- Retain ownership of the policy with the charity as the beneficiary.
- Transfer ownership of the policy to the charity.
Under the first two methods, the insured retains control of the policy and receives a credit upon death. No credit is allowed for premium payments, as they are paid prior to the donation.
Under the third method a credit applies at the time of donation based on the Fair Market Value of the policy. If the donor continues to pay premiums then these also result in a tax credit.
From the charity’s perspective, under the first two methods the charity is often not aware of the planned donation, finding out only upon the donor’s death. Charities that have consulted with Wall Actuaries have indicated a desire to receive a greater number of policies prior to death, allowing them to have a better idea of future proceeds that will be received from life insurance.
Position of CRA
Prior to 2007 a policy donated to a charity was considered to be donated at cash value. At the 2007 APFF conference and the 2008 CALU Roundtable CRA changed their position and policies donated to charity must be valued based on the Fair Market Value.
Best Policies to Value
The best policies to transfer will result in little or no taxable income upon disposition, and have Fair Market Value that is greater than the cash value. There are several factors which contribute to a policy having a Fair Market Value that is greater than the cash surrender value.