Life Insurance

Life insurance is the one asset almost everyone has.

For the young parent with limited dollars, it is a way to protect the family against economic loss in the event of a parent’s premature death. For the business owner, it may provide dollars to buy out a deceased partner’s interest or compensate for the loss of a key manager. For older individuals, it provides the liquidity needed to settle an estate and pay taxes.

Life insurance has another important use: it is a popular and practical way to make a significant gift to charity. A gift to a community foundation will be wisely administered through their investment program which will result in a stable source of income to the foundation for years to come.

Gift Examples

  • Any whole life policy
  • Many term policies
  • Many group insurance policies

Benefits to the Donor

  • Donation receipt for cash surrender value and any future premiums* paid on policies where the ownership is transferred to the charity.Small current outlay leveraged into larger future gift
  • If policy ownership rights retained by donor during lifetime and charity named as beneficiary:
    • donation receipt to estate for full value of death proceeds;
    • satisfaction of providing a future gift while retaining full control of policy.

Most Appropriate for

  • Persons (generally ages 30-60) who:
    • have an older policy no longer needed, or
    • want to make a large gift but have limited resources
  • Persons (any age) whose personal needs and family situation may be subject to change
  • Professionals with good cash flow, but limited capital assets.

* Advisors may want to suggest that donors use gifts of appreciated stocks to the charity to fund the premium payments as a way to take advantage of the preferential tax treatment – see Gifts of Appreciated Securities.


Charity is designated owner and beneficiary

Mr. Palayew gives a charity a paid-up policy with a face value of $100,000 and a policy value of $48,000. His adjusted cost base in the policy is $20,000.

Donation receipt 48,000
Tax credit (assuming 45%) 21,600
Taxable income ($48,000 – $20,000) 28,000
Tax on income 12,600
Tax savings ($21,600 – $12,600) 9,000


Charity is designated as beneficiary

Ms. Aziz would like to make a significant gift to her favourite charity and has a $100,000 life insurance policy that no longer has a specific purpose and is evaluating whether to continue the policy and pay the annual premiums and gift the proceeds to the charity. Her net income in the year of her death is expected to be $200,000.

No insurance $ Insurance $
Net income 200,000 200,000
Tax (assuming 45%) – 90,000 – 90,000
Donation tax credit 45,000
After-tax position of estate 110,000 155,000
Gift to charity 100,000
Total value to estate and to charity 110,000 255,000


The donor must also consider the annual cost of the policy premiums.

For illustration purposes a combined tax rate of 45% was used. Please note that combined tax rates vary across the provinces. 2015 tax table.

Note to reader: The purpose of this publication is to provide general information, not to render legal advice. In addition any changes in the tax structure may affect the examples listed in this information. Your client should consult their own lawyer or other professional advisor about the applicability of this information to their situation.

Additional Resources

Gifts of Life Insurance – Client info sheet
(add your own label or stamp to customize it for your clients)

Gifts of Life Insurance – Q&A [PDF]

Donor Story

When his two daughters were young, Zachary Ding bought a life insurance policy to provide for his family in the event of his death. Now, he’s 65, and things have changed. “My daughters are both grown and doing very well for themselves, and over the years, my wife and I have become fairly comfortable – she will no longer need the death benefit from my policy,” says Zachary.

The Dings support and volunteer for a youth mentoring program as well as their local museum. “We’ve always planned to leave something for important community organizations,” says Zachary. After talking with their financial planner, Zachary decided to give his life insurance policy to his local community foundation.

“After giving my policy, I received a significant tax credit,” says Zachary. “We had owned the policy for so long that we could choose to stop paying the premiums and maintain a sizable death benefit.” The Ding Fund will be established with the proceeds from the insurance policy to benefit youth development and other community organizations.