Philanthropic giving can seem overwhelming or out of reach for some, but with a bit of planning – it is more achievable than you may think.
A simple life insurance policy can be a key tool in ensuring you leave a legacy of support to causes close to your heart. Pauline Terry, who is a financial planner with Future Focus Financial Planners, sheds some light on the process of life insurance giving and how it can help you make a significant difference.
Q: What is a gift of life insurance?
A: In its simplest form, insurance is the concept of paying a small amount into a group pot, which is then used by whomever needs it. In terms of philanthropic giving, a life insurance policy is an effective way to literally turn pennies into dollars for an institution such as the University of Lethbridge.
For example, small amounts paid monthly for a life insurance premium will turn into an eventual major gift. Imagine a donor is giving $3,000 a year, for instance, to the U of L. Some donors, depending on age health and smoking status might choose to divide that in half, giving $1,500 yearly to the U of L and putting $1,500 annually into a life insurance policy for the U of L that would eventually turn into a $50,000 gift. The donor does not pay any more per year, but is leveraging their funds for maximum benefit to the U of L.
Q: How does the life insurance giving work?
A: It starts with a life insurance policy – either one that’s already in existence or one a donor establishes specifically for gifting. There are two options for leaving life insurance proceeds to an organization: by making the charity the beneficiary or by making the charity the owner and beneficiary of the policy.
Maintaining ownership of a policy allows donors to change the beneficiary if they ever need. The money is distributed at death and the donor’s estate receives the tax receipt.
Making the U of L owner and beneficiary of the policy means the donor cannot change beneficiaries, but the donor will receive immediate tax receipts for the premiums paid each year. There are different advantages to each option, so it’s important to consult a financial planner to see which option is best for you.
Q: Can I gift my life insurance benefits and still protect my family?
A: Yes. Life insurance gifting doesn’t have to be an either/or option.
It’s perfectly acceptable to take out a life insurance policy with your spouse as beneficiary, but plan to change the beneficiary if he/she passes away first.
Consider the age of your children, their stage of life and your estate – can you adequately provide for your grown children with assets such as real estate or your spouse’s life insurance plan? Do they even need the proceeds from your policy?
No matter what, a portion of a person’s estate – called social capital – cannot be given to family. If you don’t plan for it, it’s controlled by Revenue Canada. If a donor would rather see their money go to a place they choose, a gift by way of life insurance is one way to maintain that control.
Q: What type of policy is needed for life insurance giving?
A: A financial planner can help choose the right policy but typically a Permanent Policy is best because the alternative, a Term Policy, expires at a certain age (usually 80) can be ineffective and defeat the purpose.
Q: Is there anyone for whom life insurance giving is not a good option?
A: Health and age play a role in writing a life insurance policy. Seniors or those who have had health issues such as cancer may not be eligible. That’s why it is important to think about this option early. Buy it while you’re healthy. Protect yourself while you’re young and it’s inexpensive.
For those who are uninsurable, there are still options to leave a legacy such as a bequest or RRSPs. Donors should speak with a financial planner to explore the options.
Q: Who is a good candidate for life insurance gifting?
A: Life insurance gifting is a great option for anyone who wants to leave a legacy and who wants to make their donations dollars go further.
Q: How do I get started?
A: For more information, contact your financial planner, or contact Kathy MacFarlane.
Kathy MacFarlane, CFRE, Manager of Development Programs
University Advancement | University of Lethbridge
PB103, 324 5th Street South | Lethbridge, AB T1K 3M4
403-317-2838 | kathy.macfarlane@uleth.ca