The Many Lives of Life Insurance

Some general types of 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 such expenses as children’s education.

Universal or variable life. These 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 resources, the need for family protection decreases. Policies purchased to provide cash for estate settlement are less needed since the Succession Duty and Estate Tax have been repealed. Policies with a face amount that seemed large in pre-inflation days 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 show our support of 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 gone by can serve us in an entirely new way when we make a charitable gift. In other cases, a new policy can be the key to achieving philanthropic goals. Here are some possibilities:

Give the death proceeds. Marvin Holcomb no longer needs the $25,000 death benefit from the policy he took out years ago when his family was young. So he decides to have General Synod of  The Anglican Church of Canada receive the proceeds payable at his death. When he dies, 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 excess can be carried back to the previous year, and the 100% limitation will apply to that year’s income as well.

Give the policy itself. Nancy Helm, age 75, had almost forgotten her paid up $50,000 policy until she began thinking about establishing an endowment with the Diocese of Ontario in memory of her husband. She depends on the income from her other investments, but the insurance policy makes an ideal gift. Because she makes the Diocese of Ontario 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, creditable up to 75 percent of her income (excess credit 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.

Give a new policy. Ralph Swanson, in his mid-40’s, 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 and, assuming a combined federal/provincial tax credit of 48 percent, his annual tax saving is $576. Thus his “net cost” for each premium is $624, and he makes a $40,000 future gift for only $3,120.

Charitable Registration Number: 10808 2835 RR0001

The information in this document does not constitute legal or financial advice and should not be relied upon as a substitute for professional advice. The Anglican Church of Canada encourages you to seek qualified legal, estate planning, and financial advice before deciding on a course of action.