Donor Story: Turning an unneeded life insurance policy into a philanthropic funding tool

For many Canadians, life insurance is an important part of a financial and estate plan. It can provide security for a spouse, protect children and help ensure that a family has financial resources when they need them most. But what happens when you no longer need that protection?

For John and Stephanie, the answer became an opportunity to turn an existing insurance policy into something much more meaningful: a source of long-term support for the causes closest to their hearts. The Halifax couple, both career schoolteachers, had always been careful financial planners. They worked hard, saved diligently and purchased appropriate insurance to protect themselves and their three children—a daughter and two sons.

In their mid-50s, an unexpected inheritance of several million dollars significantly changed their financial circumstances. By the time they both retired at 65, John and Stephanie were financially secure.

They began thinking less about accumulating wealth and more about what they could do with it. Philanthropy had always mattered to them, but retirement gave them an opportunity to become more intentional about their giving. They wanted to support causes that had personal meaning and, just as importantly, involve their adult children in charitable giving activities. They established a Donor Advised Fund with Canada Gives—or as we call it, a Foundation account—that would allow them to support their chosen charities while also involving their children in the family’s philanthropic decision-making. Canada Gives Foundation accounts are designed to help families create a structured giving strategy, support preferred charities and build a lasting legacy of charitable giving.

Building philanthropy into their estate plan

Next, John and Stephanie began working with their advisor to develop an estate and succession plan that incorporated philanthropy alongside their retirement and family goals.

The numbers provided reassurance. Their advisor determined that they had more than enough resources to enjoy their ideal retirement, help their children and leave a substantial inheritance to the next generation. They could also set aside meaningful resources for charitable giving without compromising their family’s financial security.

That opened the door to a different kind of planning conversation: How could they make their charitable giving as meaningful and effective as possible? Two causes immediately stood out.

Stephanie wanted to support the local hospital that had cared for her mother during her battle with cancer. John wanted to establish a scholarship at a Halifax-based university that he had attended. The scholarship would be designed to help lower-income students access an education. The couple also wanted their giving to continue beyond their lifetimes. Then their advisor identified an asset that had been largely overlooked.

An insurance policy with a new purpose

John and Stephanie no longer needed all of the life insurance coverage they had purchased earlier in life. Rather than simply allowing an unneeded permanent policy to remain part of their estate plan, they explored whether it could become a philanthropic asset.

It could.

A permanent life insurance policy can potentially be donated to a registered charity, during the donor’s lifetime. Under Canada Revenue Agency rules, when a life insurance policy is transferred through an absolute assignment and the charity becomes the irrevocable beneficiary, the transfer can constitute a charitable gift. The value for receipting purposes includes consideration of the policy’s fair market value and adjusted cost basis.

For John and Stephanie, the idea was compelling: take an asset they no longer needed for its original purpose and redirect it toward the charitable legacy they wanted to create. The Canada Gives Client Services team worked with their advisor and liaised with both the hospital and the university to help translate the couple’s philanthropic intentions into a practical giving plan.

Two ways to use insurance in charitable planning

There are several ways life insurance can be incorporated into a philanthropic strategy, and the right approach depends on a donor’s financial and estate-planning objectives.

One option John and Stephanie considered was transferring ownership of the existing policy to Canada Gives, with Canada Gives becoming the irrevocable beneficiary. This is a lifetime charitable gift. Subject to the applicable tax rules, the donor may receive an official donation receipt for the eligible value of the policy. Future premium payments may also qualify as charitable gifts when the appropriate conditions are met.

The potential advantage is an immediate charitable gift and associated tax benefit, while transforming the policy into an asset dedicated to philanthropy. As a best practice, always seek professional tax advice before making any insurance-related gifting decisions.

The second approach was to retain ownership of the policy, but name Canada Gives as beneficiary. This can be an effective estate-giving strategy. If Canada Gives is named beneficiary of an insurance policy, the proceeds can be directed to the donor client’s Foundation account, where their successors can continue supporting a number of preferred charities. The insurance gift is tax receipted to the estate, subject to applicable rules. The trade-off is that this approach generally doesn’t provide the same immediate lifetime charitable gift as transferring ownership. Instead, the charitable benefit occurs as part of the estate plan.

For John and Stephanie, understanding these alternatives allowed them and their advisor to select the approach that best complemented their broader financial and philanthropic objectives.

A legacy their children can carry forward

Today, John and Stephanie’s adult children are active participants in their family’s philanthropy. The family discusses the causes they want to support, considers the needs of their community and helps determine where their annual giving from their Foundation account can have the greatest impact.

That was exactly what John and Stephanie hoped would happen when they first established their Canada Gives Foundation account. They wanted their children to inherit more than financial assets. They wanted to pass along a sense of responsibility, generosity and community. Eventually, their children plan to help maintain the family’s charitable giving legacy after John and Stephanie are gone.

For Canada Gives, this is what thoughtful philanthropic planning is ultimately about.

Our role is to help Foundation families create impact today while building structures that can continue to support the causes they care about for generations. Whether a family is donating securities, contributing registered assets, making an estate gift or repurposing an existing insurance policy, the objective is the same: to help donor clients make thoughtful decisions that align their resources with their values.

For John and Stephanie, an often-overlooked charitable strategy transformed an insurance policy they no longer needed into an important part of their philanthropic plan. Much like donating unused RRSP or RRIF income, repurposing an existing permanent insurance policy can offer an alternative way to create charitable impact while potentially providing tax benefits. With the right advice and planning, assets that might otherwise serve little purpose can instead help fund a hospital, create educational opportunities and support the causes that matter most.

For two committed philanthropists, that strategic approach helped in creating a family legacy of generosity that can continue for decades.

The Canada Gives Team

To explore how a DAF might help you build a legacy that reflects your charitable values, consider opening a Foundation account with Canada Gives. Our team is here to help guide your charitable giving with flexibility and foresight. To learn more, contact a member of our team.