Life insurance is a simple idea that takes many shapes. Its basic
purpose, of course, is to provide cash to meet the needs of survivors at the
insured person’s death, and all policies provide this benefit. However, life
insurance policies may also build up cash value that can be utilized for a
variety of purposes. A particular policy may be intended primarily for
protection through its death benefit, or it may be designed more for investment
purposes through increasing cash value.
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 expenses such as children’s education.
Universal or variable life 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 Succession
Duties and Estate Taxes have been repealed.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 H. 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 the Diocese of Edmonton 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 unused donation 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 B., age 75, had almost
forgotten her paid–up $50,000 policy until she began thinking about
establishing an endowment with the Diocese of Edmonton 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 Edmonton 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 that is income tax creditable up to 75% of her income (excess tax credits
may be carried forward up to five years).
Give a new policy. Ralph S., in his mid–40s, 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 50%, his annual tax saving is $600. Thus his “net cost” for each
premium is $600, and he makes a $40,000 future gift for only $3,000.
Ways to Make a Significant Charitable Gift
There are other
ways, too, in which life insurance can enable a donor to make a significant
charitable gift:
Use life insurance for wealth replacement—Marion and
George W., both age 60, want to contribute $100,000 to General Synod for work
in the North without diminishing
their legacy to their children. Assuming a tax credit of 50%, they realize tax
savings of $50,000 over several years by making the gift, so they plan to use a
portion of these savings to purchase a joint and second–to–die policy that will
add $100,000 to their estate when the surviving spouse dies.
Use annuity income to make a life insurance gift—Maurice
L., 68 years old and in the 39% combined tax bracket, has $100,000 in bonds and
GICs from which he receives after–tax income of $350 per month. He uses this
asset to purchase a commercial annuity that provides him after–tax payments of
$830 per month. He then allocates $300 of this increased cash flow each month
to pay the premiums on a $100,000 life insurance policy that he purchases in
the name of the Diocese of Edmonton. He
receives a gift receipt for every premium paid, and at his death, the insurance
proceeds will be his gift to the Diocese.
These are but
some of the ways in which life insurance can help you achieve your personal and
philanthropic goals. If you would like to explore, in confidence and without
obligation, a life insurance gift to the Church tailored to your circumstances
and interests, please complete and return the Request
for Planned Giving Information form.