The Many Lives of Life Insurance

Life insurance is a simple idea that takes many shapes. Its basic purpose, of course, is to provide cash to meet the needs of survivors upon the insured person’s death. All policies provide this benefit; however, life insurance policies may also build up cash value that can be utilized for a variety of purposes. A policy may be intended primarily for protection through its death benefit, or it may be designed more for investment purposes through increasing cash value.

Some General Types of LIFE INSURANCE Policies

Term life maximizes the death benefit payable if the insured dies within a specified time, but it accumulates no cash value. Because it offers the most affordable protection, it is often the choice of young parents primarily concerned about security for their family in case of an untimely death.

Whole life combines a death benefit with predictable cash value growth. Normally the premium and death benefit are fixed, and the cash value grows according to a predetermined schedule. It provides family protection but may also be used as a savings plan for expenses such as children’s education.

Universal or variable life policies place greater emphasis on growth. The premium and/or the death benefit may change, and growth in the cash value will depend on investment performance. Premiums may continue throughout life or end when sufficient reserves are accumulated to sustain the policy—large initial premium deposits may render future premium payments unnecessary.

Any of these policies can fill an important niche in one’s financial plan. As time passes, however, its original purpose may become less important. As children grow up and we accumulate other assets, the need for family protection decreases. Policies purchased to provide cash for estate settlement are not needed as there are no succession duties and estate taxes. Policies with a face amount that seemed large when purchased may seem insignificant today.

New Ways of Looking at Life Insurance

As time goes by, our priorities change. We find ourselves wanting to share our good fortune with those around us, to provide support for the causes and institutions we believe in, to leave the world a little better than we found it. When goals such as these take shape, the life insurance policy that served us well in years the past can serve us in an entirely new way when we make a charitable gift. Or, a new policy can be the key to achieving philanthropic goals. Here are some possibilities:

Donate the death proceeds. Marvin no longer needs the $25,000 death benefit from the policy he took out years ago when his family was young. He decides to have the Diocese of Edmonton receive the proceeds payable at his death. His estate will receive a donation receipt for the amount of the death benefit, resulting in significant tax savings on his final return. If the donation receipt exceeds 100% of his income in that year, the unused donation can be carried back to the previous year, and the 100% limitation will apply to that year’s income as well.

Donate the policy itself. Nancy, age 75, had almost forgotten her paid–up $50,000 policy until she began thinking about establishing an endowment with the Diocese of Edmonton in memory of her husband. She lives on the income from her other investments so the insurance policy makes an ideal gift. Because she makes the Diocese of Edmonton the beneficiary and also the owner of the policy, her gift is irrevocable, and she receives a donation receipt for the cash value of the policy that is income tax creditable up to 75% of her income Unused tax credits may be carried forward up to five years. Nancy’s policy is paid up, but if premiums were still owing and she continued to pay them, she would receive donation receipts for those payments as well.

Donate a new policy. Ralph, in his mid–40s, would like to make a significant gift to the Anglican Foundation of Canada. He has no existing policy or assets to contribute but he does have some discretionary income, so he purchases a new $40,000 policy naming the Foundation as both owner and beneficiary, and pays for it in five annual payments of $1,200 each. He receives a donation receipt for each payment. With a combined tax credit of 50% his annual tax saving is $600. Thus his “net cost” for each premium is $600, and he makes a $40,000 future gift for only $3,000.

Ways to Make a Significant Charitable Gift

There are other ways, too, in which life insurance can enable a donor to make a significant charitable gift:

Use life insurance for wealth replacement—Marion and George, both age 60, want to contribute $100,000 to General Synod for work in the North without diminishing their legacy to their children. With a tax credit of 50%, they will realize tax savings of $50,000 over several years by making the gift. They plan to use a portion of these savings to purchase a joint and second–to–die policy that will add $100,000 to their estate when the surviving spouse dies.

Use annuity income to make a life insurance gift—Maurice, 68 years old and in the 39% combined tax bracket, has $100,000 in bonds and GICs from which he receives after–tax income of $350 per month. He uses these assets to purchase a commercial annuity that provides him after–tax payments of $830 per month. He then allocates $300 of this increased cash flow each month to pay the premiums on a $100,000 life insurance policy that he purchases in the name of the Diocese of Edmonton. He receives a donation receipt for every premium paid, and on his death, the insurance proceeds will be his gift to the Diocese.

These are but some of the ways in which life insurance can help you achieve your personal and philanthropic goals. If you would like to explore, in confidence and without obligation, a life insurance gift to the Church tailored to your circumstances and interests, please complete and return the Request for Planned Giving Information form.

The information on this webpage does not constitute legal or financial advice and should not be relied upon as a substitute for professional advice. The Planned Giving Office encourages you to seek professional legal, estate planning and financial advice before deciding on a course of action. The examples given above reflect rates at the time of writing and are subject to change.