An individual can purchase a life insurance policy for the benefit of a registered charity. In order to obtain a charitable tax credit for the premiums he must assign the policy to the charity, making it owner and beneficiary.
Assigning an existing policy to a charity
Individuals can donate an existing policy to a registered charity. In such cases the charity can
issue a charitable donation tax credit receipt for the cash surrender value (CSV) and additional tax receipts for additional premiums paid. If, however, the CSV exceeds the policy’s adjusted cost basis (ACB), the policy gain will be taxable as income in the year the policy was donated. In some circumstances, where there is no cash value, but a potential market value, the insurer could provide a value on which the receipt could be insured.
Naming a charity as beneficiary
A policyholder can name a charity as beneficiary of a policy. However, this may not be the most tax efficient option for the policyholder. First, the charity will not own the policy when this is done (or even know it is the beneficiary) so it cannot issue receipts for the cash surrender value (CSV), if any, or for the premiums paid. It will however issue a receipt to the estate when the policyholder dies and the benefit is paid.
Donating a segregated fund contract
Special rules apply for the donation of publicly traded securities and insurance contracts holding segregated funds. In simple terms, the capital gains inclusion rate (which is otherwise 50% of the gain) is reduced to zero for the donated securities or segregated funds. The donor receives a charitable donation tax credit receipt for the full value of the donation.