Finally … life insurance designed specifically for philanthropy
Donating life insurance has pros and cons for donors and charities. One way to eliminate most of the disadvantages is with charity-owned, single-premium, permanent life insurance. This is finally available with Canada Life My Par Gift. This innovation may be right for you.
- 1 The ideal life insurance design for philanthropy
- 2 How My Par Gift works
- 3 Common questions about My Par Gift
- 3.1 Why not donate directly without My Par Gift life insurance?
- 3.2 Do I qualify for life insurance?
- 3.3 What if I don’t qualify for standard rates?
- 3.4 Who pays the single-premium for My Par Gift?
- 3.5 Can you pay your single-premium with publicly-listed securities or other assets-in-kind?
- 3.6 Can I change my mind after donating?
- 3.7 How can I get information about the life insurance in the future?
- 3.8 What if the charity needs cash now?
- 3.9 Does the cash value affect the charity’s disbursement quota?
- 3.10 What if I want to donate in the future, not now?
- 3.11 What are the advantages of nonexempt life insurance?
- 4 Considerations for donors and charities about My Par Gift
- 5 Alternatives to My Par Gift
- 6 How well does My Par Gift perform?
- 7 How to get illustrations for My Par Gift
- 8 Questions to ask the charity before getting My Par Gift
- 9 What’s right for you and the charity?
The ideal life insurance design for philanthropy
Standard life insurance products — temporary or permanent — have many advantages. Despite that, few Canadians are using life insurance for their planned giving. Insurers have generally not innovated to address this issue. They mainly participated in the charitable sector through sponsorships and presentations. The results have been poor.
Overall, the charitable sector has not been enthusiastic about life insurance donations.
The positive response to the Will Power campaign shows that Canadians are looking for ways to support charities with gifts at death. Although we are founding partners in this educational initiative, there was little we could do until life insurance is configured as follows:
|The charity is the owner and beneficiary from the outset. |
There is no waiting for a policy to be transferred later, no risk of the donor changing their mind, and no risk of adverse tax consequences for the donor.
|There is only a one-time, lump-sum premium payment. |
The charity doesn’t need to worry about paying a penny more in the future.
The donor doesn’t need to worry about being asked for more money later or to show a history of prior charitable giving.
|Inflation erodes the value of a level death benefit. |
With whole life insurance, the policyowner usually gets annual policy dividends that can be used to increase the death benefit (and future policy dividends).
The problem? Charity-owned, single-premium, whole life insurance did not exist in Canada.
As of April 2023, there’s finally a solution: My Par Gift from Canada Life. The main drawback is that the design uses participating (“par”) whole life insurance, which exposes the charity to some risks. This creates an opportunity for other insurers to launch solutions with more guarantees.
How My Par Gift works
The process of evaluating and getting My Par Gift has several steps.
Decide how much to donate
Your minimum one-time donation is $10,000 and covers all the premiums for life.
If you don’t know which charity to support, you can put My Par Gift into your donor-advised fund and decide later.
Review how My Par Gift performs for you
The way My Par Gift performs depends on several factors, including:
- Your donation amount
- The life or lives insured: you, your partner, or both of you (Joint First To Die, or Joint Last To Die)
- Each life insured’s age (18-75), gender and health
In a convenient video meeting, you’ll be able to:
- See the death benefit and cash value — initial and projected — possible from your donation
- Get answers to your questions about charitable giving and donating life insurance
- Request changes, such as to the donation amount
Since projected values are not guaranteed, we use conservative assumptions to help you make a better decision.
Apply for My Par Gift
Once you are satisfied with what My Par Gift achieves, both you and the charity e-sign an insurance illustration that we prepare. We then guide you through the standard online e-application process for whole life insurance. There are additional anti-money laundering requirements, which means a bit more paperwork.
There are slight differences in some situations, if:
- Your private corporation is the donor, and you are the life insured
- You are the donor, and the life insured is your partner or child
- There are two lives insured
We’ll take care of the nuances for you.
After you are approved, we:
- Send information to you and the charity:
- You (as the life insured) get a copy of the complete application, including any questionnaires
- The charity (as the policyowner) gets the policy contract and a copy of the application without your personal, medical and financial details
- Review the packages separately with you and the charity
- There is a “10-day free look period” during which you or the charity can change your minds
- Collect e-signatures and any other requirements
- You provide authorization for Canada Life to collect the one-time single-premium from your bank
After you pay the single-premium, Canada Life informs the charity. The charity then issues you a donation tax receipt.
Underwriting takes time. If you want a donation tax receipt immediately for the current tax year, you can make your donation to the charity for payment to the insurer. If you are not approved for insurance, you have still completed your donation in time.
You have given your preferred charity a gift that’s worth more than a cash donation.
Common questions about My Par Gift
Here are common questions from both donors and charities.
Why not donate directly without My Par Gift life insurance?
You get the same donation tax receipt whether you donate directly or use My Par Gift.
A dollar of premium buys more than a dollar of death benefit (often a lot more, especially long-term as the policy grows). Using life insurance magnifies your donation. With My Par Gift, you get the same tax benefits as donating directly, depending on how you donate life insurance.
If you are not able to qualify for life insurance at standard rates, you can still donate directly.
Do I qualify for life insurance?
If you have health issues, we can find out the anticipated effect on your eligibility for insurance without identifying you.
If you may not qualify, the life insured could be your partner or child.
What if I don’t qualify for standard rates?
Depending on your health, you may be charged higher premiums. In some situations, the easiest remedy is to lower the death benefit so that you’re paying the same premium, just for less coverage. If the extra charge (called a “rating”) is too large, it may be best to donate directly instead.
Applying for insurance puts you under no obligation to accept the policy or pay any premiums. You get a “10-day free look” during which you can decide.
Who pays the single-premium for My Par Gift?
You have two options for paying the single-premium:
- You donate to the charity. The charity sends you a donation tax receipt. The charity pays the single-premium.
- You pay Canada Life, and they inform the charity. The charity sends you a donation tax receipt.
Tip: you don’t need to make your donation before you know if you are approved.
Can you pay your single-premium with publicly-listed securities or other assets-in-kind?
Cash is the least tax-effective way to donate.
There are tax advantages to donating assets which the charity then sells (assets-in-kind). This can eliminate the capital gains tax that would have arisen if you sold the assets and donated the cash you received. For corporate donations, the entire capital gain can be credited to the Capital Dividend Account, which allows shareholders to extract assets tax-free.
To get the additional benefits of non-cash gifts, you can donate the asset-in-kind to the charity, which then pays the single-premium.
Can I change my mind after donating?
Once you donate, you cannot get your donation back. You are still rewarded because you got a donation tax receipt. If you are not sure about where to donate or think you may change your mind in the future, you could donate to your donor-advised fund.
How can I get information about the life insurance in the future?
Information goes to the charity as the policyowner.
There is a Policy Information Access Form which allows information sharing with you. The charity receives this form in the package with the policy contract.
If you want to get access, talk to the charity before making your donation. This step is not required if the charity is your donor-advised fund.
What if the charity needs cash now?
Charities often need money for current and future spending. For example, an endowment allows spending from a portion of the annual interest earned. This reduces the reliance on donations.
If a charity needs money immediately, life insurance is the wrong vehicle. As the owner, the charity can cancel the coverage at any time to access the cash value. However, the cash value in the early years is less than your donation. Where possible, life insurance should be left in place because no further premiums are required.
With My Par Gift, the charity could:
- Take a policy loan: they can borrow nearly all of the cash value, which can be a beneficial option in later years. The loan does not need to be repaid since the death benefit can do that, though coverage could lapse if the loan balance grows faster than the cash value. Collateral loans from a third-party lender may also be available.
- Take policy dividends in cash: this can provide a varying amount of cash each year. The drawback is that the policy dividends won’t be available to increase the death benefit and cash values for the future. The charity can ask to change the dividend option to paidup additions, but this will require information about the health of each life insured as part of the “evidence of insurability”.
Does the cash value affect the charity’s disbursement quota?
Charities must spend a minimum amount (“disbursement quota”) on their charitable activities each year. The cash value of life insurance doesn’t affect the disbursement quota. This can help the charity build assets for the future.
What if I want to donate in the future, not now?
If you like what My Par Gift does but want to donate in the future, you could get low-cost term life insurance from Canada Life now and convert to My Par Gift later, regardless of your health.
Before your donation, you are the policyowner, pay the premiums and choose the beneficiary (which could be a charity). At the time of conversion, anti-money laundering provisions apply.
What are the advantages of nonexempt life insurance?
In a taxable environment, life insurance offers many advantages, including tax-sheltered investment growth. The Income Tax Act has special provisions to prevent funds from going into life insurance too quickly. Products that follow the rules are exempt from annual taxation on the growth in the cash value (i.e., exempt from annual accrual taxation). These are often called “tax exempt” policies.
For philanthropy, nonexempt, charity-owned, single-premium whole life insurance is ideal because registered charities are:
- Exempt from income tax under Income Tax Act paragraph 149(1)(f)
- Allowed to issue donation tax receipts
Canada Life is being innovative by making My Par Gift a nonexempt product that allows a single premium. We’ve been waiting for this.
Considerations for donors and charities about My Par Gift
|Considerations For Charities||Considerations For Donors|
|The policyowner and beneficiary is a registered charity||Full control but also full responsibility.||No hassles but no control over the insurance. Confirm that your preferred charity is on CRA’s list of registered charities.|
|You (as the donor) must be insurable||None.||If you have health issues, the face amount from the single premium gets reduced.|
While you get the same donation receipt, the charity gets less.
|Personal or corporate donations||Not relevant.||You can make your donation personally or from your private corporation.|
|One-time premium||No worries about requiring|
or the coverage lapsing.
|No worries about being asked to donate more in the future to cover additional premiums. Large upfront donation tax credit.|
|Minimum donation of $10,000 (one-time premium)||Not relevant.||You don’t have the option to donate additional premiums without getting new life insurance.|
|One charity per policy||Don’t need to share the death benefit with another charity.||To support multiple charities without getting multiple insurance policies, you could own My Par Gift in your donor-advised fund.|
|Participating (“par”) life insurance||The Canada Life par account is like a miniature insurance company. If results are better than projected, policyowners may share a portion of the earnings.|
Cons: Transfers risks to the charity for poor investment returns, higher expenses, higher taxes, more deaths, unexpected lapses, unexpected policy loans, etc.
|The value of your donation could be lower than you or the charity anticipated.|
We use conservative assumptions to show more of a “worst case”.
|Policyowner dividends||If policy dividends are provided, they can be taken in cash (helps with current spending) or used to increase the death benefit by getting more single-pay life insurance (“paidup additions”).||You benefit from knowing that the charity is getting more from your gift.|
|Policy loans||Take loans secured by the cash value (which continues to grow). There is no requirement to pay the loan interest or repay the loan.|
Normally, loans above the Adjusted Cost Basis would be taxable, but that’s not a consideration because charities aren’t taxed.
Con: The insurance policy gets cancelled if the loan balance (including the loan interest) exceeds the cash value.
|Anti-money laundering provisions||Not relevant.||Unlike other whole life products, special provisions protect against money laundering. This means the inconvenience of additional paperwork.|
|Low maintenance||Canada Life does all the work and provides annual policy statements.||You benefit because there’s no maintenance on your part.|
Alternatives to My Par Gift
As of early April 2023, no other major life insurance company offers charity-owned single-premium whole life insurance for philanthropy in Canada. Perhaps that will change, based on the success of My Par Gift.
There are other alternatives, though. You could bypass life insurance and make a direct gift of assets. That’s faster because there is no insurance underwriting. We’ll provide information to help you compare My Par Gift with your alternatives.
If you decide to make a direct gift of assets, you could purchase life insurance to replace to the value of your donation. This preserves the value of your estate. The coverage will often cost less than the value of the donated assets. You can use the tax savings from your donation to help fund the policy.
How well does My Par Gift perform?
Since My Par Gift is new, there is no track record. However, Canada Life seems committed to helping the charitable sector with a first-of-its-kind product. You can’t compare with similar insurance products because none are currently available.
How to get illustrations for My Par Gift
My Par Gift is a simple product: decide how much to donate and which charity to support. However, you can’t get instant illustrations yourself.
We’ll prepare illustrations for you and explain them to you.
Questions to ask the charity before getting My Par Gift
Since donating life insurance has pros and cons, ask if the charity is willing to accept life insurance. From your perspective, your donation receipt is the same with or without life insurance.
What’s right for you and the charity?
Donating to charity is worthwhile, and life insurance may be the right vehicle for you. We’ll help you understand your options.
To get clarity from your family team at Taxevity, schedule a private chat.