Insurance product a one-and-done gift to charity

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Canada Life has opened new philanthropic opportunities for clients and charitable organizations with its recently launched My Par Gift participating life insurance policy.

As with any life insurance product, a death benefit is attached to the life of the insured person, except with My Par Gift, the insured chooses a registered charity to become both owner and beneficiary of the policy.

“It’s a single premium product, so it’s easier for clients to give back to a cause they care about without having to worry about future payments or commitments,” says Paul Orlander, Canada Life’s Toronto-based executive vice-president in charge of individual customers.

“We built My Par Gift with simplicity in mind – simplicity for the donor, for the advisor and for the charity,” he adds, noting that the new policy was designed to be accessible to many Canadian households, with premiums starting at $10,000.

The designated charity has a lot of flexibility. It can elect to withdraw from the cash value of the policy, receive potential dividends as cash or additional insurance growth, or use the policy as collateral for a loan against the cash value.

When the insured person dies, the charity receives the death benefit, which is determined using a similar approach for the pricing of other life insurance products. This typically takes into consideration individual demographics, such as gender, age, and smoking status. Additional factors, such as investment returns, expenses, and taxes also figure into the actuarial calculation, says Orlander.

“Canada Life is the first company to launch a permanent, one-pay life insurance policy specifically for charitable donations,” says Mark Halpern, founder, president and chief executive officer of Wealth Insurance.com Inc. in Toronto.

Cost and tax efficiency in legacy giving

My Par Gift can create legacy gifts in a cost- and tax-efficient way, compared to giving cash, cheques and credit cards, says Halpern.

For example, the charity can receive a potential gift that is much larger – between five and twenty times, depending on the age of the donor – than they would receive from a donor in cash. With a one-time premium, there is next to no administration, and the policy is paid up, he elaborates.

Furthermore, there is no risk to the charity of having to come back to a particular donor to try and persuade them to keep paying if, say, their business dries up and they experience financial difficulty, adds Halpern.

The premium paid by the personal or business donor qualifies as a charitable donation, and tax donation receipts will be issued by the registered charity.

My Par Gift policies are non-exempt, meaning they would typically be taxed on growth. However, since ownership is restricted to registered charities, there are no tax implications to the charities involved, as they are generally exempt from paying taxes, explains Orlander.

How charities benefit from new insurance product

My Par Gift presents designated charities with a longer timeline, with yield and benefit being pushed down the road for future endeavours, compared to cash donations, which are typically used for immediate projects, says James Ward, a partner with OSF Partners in Toronto.

“It helps charities budget going forward in a longer-term way, not just [for] current donations,” he adds.

Another advantage, says Orlander, is that the guaranteed death benefit, which is in excess of the premium amount, allows the person or business donating My Par Gift to a designated charity to make a more significant impact on that charity than a cash donation would have.

For example, take a male donor who is 50 years old and a non-smoker who purchases a $10,000 My Par Gift policy with that initial, one-time premium: “The initial guaranteed coverage that the charity would be entitled to is about $14,000, so there’s an immediate guaranteed death benefit that’s greater than the initial policy amount,” he explains.

The individuals for whom this type of policy would typically appeal are perhaps between 45 and 55, or older. Their children have grown up and they have some money put aside for what they need, and want to contribute to a charity to address a cause they are passionate about, says Halpern.

Businesses, especially holding companies, may be good candidates

On the business side, My Par Gift could also appeal to a much younger demographic, such as philanthropic-minded entrepreneurs, business owners or professionals who want to address a societal issue and who also realize that donating a policy to a registered charity with high perceived value could be very good for business, he adds.

“I think a really good candidate for this kind of strategy is someone with a charitable inclination who owns a holding company with a lot of public company stock,” says Ward.

“COVID was a bit of a game changer in that it made a lot of people much more aware of their mortality, and also more aware of their incompletions. One of those incompletions was their legacy. My Par Gift allows people to address something that they can be very passionate about,” says Halpern.

“Innovation in the insurance industry doesn’t happen very often,” says Dan O’Shaughnessy, the Toronto-based founder and partner of OSF Partners. “When we [first] saw [My Par Gift], we were surprised – and impressed.”

Alleviating insurance trafficking concerns

Concerns have been expressed in recent years about insurance being donated by individuals to a charitable entity where there was no visible connection between donor and advisor, leading to accusations that the transaction was purely for financial gain.

“The charities were perceived as trafficking insurance policies, which was a problem because insurance was originally meant to be bought for widows and orphans, not for people to make money from,” says Halpern.

This really cooled the marketplace around insurance and charity until things could be worked out with the proper authorities. But the situation has since been resolved and a set of protocols for donating insurance was created by the Canadian Association of Gift Planners, and others, he explains.

My Par Gift alleviates trafficking concerns because the individual or business donor will write a cheque out of their own pocket for $10,000 or more, with the funds going to a single designated charity. “And it’s a one-and-done policy, so it really takes away that whole area of trafficking altogether,” Halpern says.

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