Donating a Life Insurance Policy to your Ottawa Church or Charity so Everybody Wins

| December 6, 2013 | 3 Comments

 

Turn your change into dollars

Turn your change into dollars

During the holiday season most of us get into the spirit of giving, gifts to family and friends and donations to charities, churches and other community organizations. What if there was a way to maximize your donations to really make a difference and help those that need it and still claim your tax deduction for the year?  By donating a life insurance policy to a charity you will still receive your tax credits and you can provide a large amount of money to support your organization when they really need it most.

The facts

There are approximately 83,000 registered charities in Canada and approximately 29,000 in Ontario. The average amount of charitable donations increased from $170 in 1997 to $250 in 2007. However, the number of tax filers declaring charitable donations decreased from 25.7% to 24%. Churches and religious organizations receive 46% of donated dollars followed by health organizations (15%) and social services organizations (10%). The top 25% of donors (who contributed $364 or more annually) account for 82% of the total value of donations. The top 10% (who contributed $1,002 or more annually) account for 62% of the total value.

The problems facing Ottawa charities and churches

Ottawa Churches, Religious organizations and Charities are facing several challenges in today’s economy;

  • Cannot afford to lose current donations
  • Want to maintain or increase their donor base
  • Want to enhance loyalty of donors to the charity
  • Need to build a cash reserve for emergencies or capital projects
  • Want to reduce time spent on fundraising activities

How can you make the most of your donation dollars?

Nearly 20% of Canadians surveyed said they planned to increase their donations to charity next year. On average, those who donated spent more on gifts to non-profit organizations ($1041) than on holiday gifts for friends and family ($607)

Using life insurance allows a person to use a small amount of money to provide a large gift to a charity for a relatively small annual premium (which may generate a tax credit), without reducing the estate to be left to their dependents/beneficiaries. It’s easy to be generous when it doesn’t cost too much.

How does donating using a life insurance policy work?

You can do it two ways:

  • Gift of policy, or
  • Gift of proceeds

Charities prefer permanent policies (UL or Term to 100) because:

  • The policy will not expire
  • The cash value is immediately useful

The three methods:

Donor Owned Policies:

1. Donor owned life insurance policy with charity named as beneficiary

2. Funding a bequest through a will Charity Owned Policies:

3. Charity owns the policy and is the beneficiary

The tax rules on charitable giving Individuals 

Entitled to non‐refundable, non‐transferable Federal tax credit:

On the first $200 – 15%

On amounts above $200 ‐ 29%

Plus provincial tax

And surtax savings

 Example

A person donates $5,000 to charity in one year.

Tax credit on first $200:

$200 x (0.15 x 1.50) $ 45.00

Tax credit on remaining amount:

($5,000 ‐ $200) x (0.29 x 1.50) $2,088.00

Total amount of tax credit:

($45.00 + $2,088.00) $2,133.00*

This works out to be equal to approximately 43% of the value of the gift.

*surtaxes ignored.

Money you spend annually on premiums will be considered a charitable donation.  An insurance policy can be donated for no additional cost to you when compared to a simple cash donation.

The information is of a general nature only and does not take into account your individual objectives, financial situation or needs. It should not be used, relied upon, or treated as a substitute for specific professional advice. I recommend that you obtain your own independent professional advice (preferably me) before making any decision in relation to your particular requirements or circumstances.

Source: www.canadianfundraiser.com (2010)

Source: Caring Canadians, Involved Canadians: Highlights from the 2007 Canada Survey of Giving, Volunteering and Participating, Michael Hall, David Lasby, Steven Ayer, of Imagine Canada and William David Gibbons, Statistics Canada, 2009.

Photo credit: Mindful One / Foter.com / CC BY-NC-ND

 

 

Tags: , , ,

Category: Finance, Living, Non-Profit

About the Author ()

Andrew is a licensed Life Insurance Broker and Registered Retirement Consultant-RRC® helping Ottawa families since 2011. Awards : 2017 ThreeBestRated.ca -Handpicked Top 3 Financial Services in Ottawa, 2017 Faces Magazine Awards – Ottawa’s Favorite Financial Advisor, 2017 Feedspot Top 40 Life Insurance Blogs on the web and 2016 Insurance Business Magazine – Life & Health Advisor of the Year Finalist.

Comments (3)

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  1. beth says:

    This is a great idea & more people should look into it

  2. Victoria Ess says:

    I bet many people have never thought about doing this, but would be totally for it if they did.

  3. Brenda A says:

    I have never even heard of this and am in awe at the simplicity and how achievable this is. This is a donation that can have a huge impact. Thank you for opening my eyes. I will discuss this with my husband for the new year.

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