How it works

This type of donation is accepted as a charitable donation under the applicable tax legislation if you assign your life insurance policy in full to a charity and if you designate the latter as the beneficiary of the policy.

Value of the gift

When you assign an existing life insurance policy to a charity, the amount of the donation you make to it generally corresponds to the policy surrender value. The charity will issue you a tax receipt entitling you to a tax credit for the year in which you make the donation. If you choose to continue paying the policy premiums you will receive an annual tax credit for the premiums paid.

If you purchase a new life insurance policy, it comprises no surrender value at the time of purchase, and only the premiums that you will pay entitle you to a tax credit. In such a case, there are two possibilities:
 

• Pay the premium payable to the charity, which will pay it to the insurer; or
  
• At the charity's request, and with its written consent, pay the premium to the insurer.
   

Upon your death, the principal insured under the life insurance policy will be paid to the charity as beneficiary.  No receipt entitling you to a tax credit will be issued in your name or in the name of your estate, since you will have received a tax credit on the premiums paid each year.

Example:
Since her sister's death from breast cancer, Michelle, a teacher, has made a $500 donation every year to a research centre specialized in oncology, which is a registered charity.

On the advice of her financial planner and in order to maximize her donation to this charity, Michelle purchased a $10,000 Desjardins Financial Security Planned Giving insurance policy, which she immediately assigned to this charity.

Under the contract terms established, the policy will be fully paid after payment of the monthly premiums over a seven-year term.  The monthly premiums are $41, for an annual premium of $492.

During these seven years, Michelle will pay $492 every year, an amount that qualifies for a tax credit for a charitable donation.

Thus, the research centre is certain to receive the sum of $10,000, on Michelle's death.  To make such a contribution, Michelle would normally have had to pay $500 a year, for 20 years.
 

• If your health condition prevents you from purchasing a life insurance policy, you can purchase one in the name of another person, such as your child, brother or sister.
   

Caution

Assigning a life insurance policy is considered a disposal under applicable tax legislation.  Consequently, part of the redemption value of your policy could constitute taxable income. We recommend you consult a financial security advisor in this regard.

Note: This text must only be used for information purposes. In no case is to be construed as providing tax or legal advice.
 

Updated: January 2008