Planned Giving

Planned giving of a new life insurance policy is a concept that allows clients to use permanent life insurance to achieve their philanthropic goals. It’s a win-win strategy. It benefits the client while they’re living, because they’re the insured and the one paying the life insurance premiums. Because the premium payments are considered to be a gift, the client will receive an official tax receipt they can use to claim charitable tax credits. Upon the client death, the registered charity they’ve selected will receive the policy’s death benefit which, in most cases, will be considerably higher than all the premiums the client will have paid.

Thanks to planned giving, your clients can play an active role in improving living conditions in their community or elsewhere.

There are different planned giving strategies to choose from. The most common are:

  • Naming a charity as the beneficiary on an existing policy
  • Assigning an existing policy
  • Donating a new life insurance policy to a charity

We’ll be taking a closer look at planned giving by donating a new life insurance policy to a charity.

The first thing your client needs to do is contact the charity or foundation they’d like to support to get their consent and make the necessary arrangements.

Here’s how the strategy works:

  • Your client chooses a qualified1 charity to be the policyowner and the beneficiary of the policy.
  • As the donor, your client is the insured and the person who pays the life insurance premiums.
  • Once the policy is in force, the charity will issue an official tax receipt every year for the premiums paid (this only happens if the charity is the policyowner and the beneficiary). Because the premiums are considered to be a gift, your client will be able to claim federal and provincial charitable tax credits2 for the year of payment.
  • When your client dies, the death benefit is paid to the charity.

The illustrations below compare the cumulative premiums paid for a new Whole Life Guaranteed 20 Pay and the $100,000 death benefit that will be paid to the charity. If your client invests $1,508 a year, they’ll be eligible for a $719 charitable tax credit. This means that they’ll only be out of pocket $789 each year. After 20 years, they’ll have paid a total of $15,780 in premiums. If your client dies at 82 (average life expectancy), the charity they want to support will receive the $100,000 death benefit, tax-free. That's $84,220 more!


Advantages

Your client can:

  • Make a sizeable donation to a cause that’s important to them or support several causes through a community foundation, without impacting their estate
  • Get an official tax receipt every year for the premiums paid and claim charitable tax credits
  • Support a cause hassle-free—no legal documents required

The charity will:

  • Receive the policy’s death benefit which, in most cases, will be considerably higher than all the premiums paid
  • Have more money to help those in need
  • Benefit from a reliable source of funding for future charitable activities

    • Applicable products

    Whole Life:

    • Whole Life Guaranteed 10 Pay
    • Whole Life Guaranteed 15 Pay
    • Whole Life Guaranteed 20 Pay
    • Whole Life Guaranteed to 65
    • Whole Life Guaranteed to 100

    Participating Life:

    • 5 Pay PAR
    • Estate Enhancer 10 Pay
    • Estate Enhancer 20 Pay
    • Estate Enhancer to 100
    • Accelerated Growth 10 Pay
    • Accelerated Growth 20 Pay
    • Accelerated Growth to 100

    Type of coverage

    • Individual
    • Joint first-to-die
    • Joint last-to-die

    Dividends Options

    • Paid-up additions (PUAs)
    • Enhanced insurance (EI)

    Underwriting

    There are underwriting rules and criteria for planned donations that must be followed and met. Go to the Underwriting tab for more details.


    1 Qualified charities (or foundations) must be on the Government of Canada’s List of charities and other qualified donees. If they aren’t, they’ll need to register for charitable or other qualified donee status.
    2 Tax credits for donations and gifts are non-refundable. That’s why a minimum taxable income threshold has to be met to fully benefit from the total annual charitable tax credits for the life insurance premiums paid.

Planned giving of a new life insurance policy is right for:

  • Clients who believe in a charity’s mission
  • People with the financial means to support a cause that’s important to them
  • Young people looking for an affordable way to help others

Planned donations have concrete and lasting benefits. They’re a great way for your clients to show their support for an organization or association and build a better today and tomorrow.

Underwriting

Buying a life insurance policy for the benefit of a registered charity can also provide certain tax benefits, while your clients are still living or after their death. Depending on the tax strategy, some criteria must be met and, from an underwriting standpoint, the insurable interest must be demonstrated.

Here’s what you need to know to ensure that your client’s planned giving strategy is exactly that:

  • The policyowner can be either the insured or the charity based on the following scenarios:
    • Scenario 1
      The charity is both the policyowner and the beneficiary of the policy. The insured (the person who pays the premiums) can claim charitable tax credits on the premiums paid, because they’re considered to be a gift. This scenario is illustrated in the software.
    • Scenario 2
      The insured is the policyowner and the charity is the beneficiary of the policy. In this case, charitable tax credits can’t be claimed until the insured dies. This scenario isn’t illustrated in the software yet.
  • The beneficiary of the policy is a qualified charity or donee1.
  • The insured is the person who wants to make a donation to a charity or foundation that’s important to them.
  • The insured is the only person who will be paying the premiums—they can’t be paid by a third party.
  • The maximum insurance amount that your client can apply for is $500,000 (the usual standards apply and underwriting approval is required).

1 Qualified charities (or foundations) must be on the Government of Canada’s List of charities and other qualified donees. If they aren’t, they’ll need to register for charitable or other qualified donee status.

For amounts over $500,000, the following information is necessary to determine the eligibility of the application and the designated policyowner:

  • A letter explaining the application and describing:
    • The client’s need
    • The related tax strategy
    • The client's assets (if financial statements aren’t requested as a basic requirement)
    • The client’s current insurance coverage
    • The client’s previous philanthropic donations to the beneficiary
    • Any other relevant information required for financial analysis

Requests that don’t meet these criteria can lead to serious consequences for the client/donor (e.g., no tax receipt for a portion of the donation, insurance capital that could limit future applications) and for the organization/beneficiary (e.g., trouble tracking the insured after their death, no control over the policy if they are not the policyowner). If you receive one, forward it to the Product Expertise Team (product.support@desjardins.com) for approval prior to completing the transaction with the donor.

Here’s how it works:

  1. Click the Sales Strategies tab.
  2. Open the Concepts section.
  3. Choose Planned giving of a new life insurance policy from the drop-down menu.
  4. Download the concept by clicking Export to Excel to transfer the illustration data to a spreadsheet. Within 60 minutes of doing this, you’ll need to open the spreadsheet to access the illustration data. Otherwise, you’ll have to download the spreadsheet again.
  5. Once the spreadsheet has been downloaded, open it in your browser or in your Downloads folder.
  6. Activate the content and macros.
  7. The following screen will appear:
  8. Complete the 2 required fields. It’s important to enter an amount in the Annual Income before Tax field, because that’s what’s used to determine tax credit rate levels. Rate levels also vary depending on the province or territory selected.
  9. Click the PDF icon on the right of the screen to View the report. You’ll see a PDF version of the Donation of a New Life Insurance Concept Report.
  10. You don’t have to save the report manually—a copy is automatically saved in the Downloads > Desjardins folder.
  11. Go back to the concept data entry screen and press Exit.
  12. You can only see the spreadsheet results in the PDF you’ve saved. If you want to illustrate the concept again, you’ll need to prepare a new illustration and download the concept from the Sales Strategies tab.

Client leaflet – Planned Giving – 03047E04 (Note: We are distributing the 2017-08 printed version in English at the moment)