Donating Life Insurance to Charities
The following Bulletin was released by the BC Financial Services Authority (BCFSA) on May 4, 2020 and updates the BCFSA’s position on the donation of life insurance policies to registered charities. This bulletin clarifies the Authority’s position after the surprise announcement in November of 2019 that the BCFSA prohibits the donation of life insurance policies to charities in the province of British Columbia. This abrupt move created concern and confusion around the common and valuable practice of policy owners who no longer need existing insurance policies. Many stakeholders were affected by the prohibition and efforts have been ongoing since that time to have the BCFSA confirm a position that allowed the continuation of this form of donation. The Authority has released their Bulletin affirming that donors can donate inforce insurance policies as long as they are in compliance with the regulations. We are please with the outcome. The regulations are clarified below:
BULLETIN NUMBER: INS-20-003
TITLE: Charitable Donation of Life Insurance Policies in British Columbia
LEGISLATION: Insurance Act (section 152) DATE: May 2020
This bulletin clarifies BC Financial Services Authority’s (BCFSA) position on the interpretation and application of section 152 of the Insurance Act (Act) to certain activities related to the charitable donation of life insurance policies in British Columba.
BCFSA is aware of discussions in the charitable giving community that section 152 of the Act may limit certain activities related to the charitable donation of life insurance policies in British Columbia.
Section 152 of the Act states:
152 Any person, other than an insurer or its authorized agent, who advertises, or holds himself or herself out, as a purchaser of life insurance policies or of benefits under them, or who traffics or trades in life insurance policies for the purpose of procuring the sale, surrender, transfer, assignment, pledge or hypothecation of them to himself or herself or any person, commits an offence against this Act.
Section 152 prohibits two separate types of activity:
1. Advertisement, or holding out, as a purchaser of life insurance policies or of the benefits under life insurance policies.
2. The trafficking or trading in life insurance policies for the purpose of procuring the sale, surrender, transfer, assignment, pledge or hypothecation of life insurance policies to that person or any person.
Engagement in the activities identified under section 152 is an offence under the Act. BCFSA may investigate activities and make recommendations to Crown Counsel at the BC Prosecution Service to proceed with charges in court.
The intent of section 152’s prohibition of trafficking in life insurance policies in British Columbia is to protect vulnerable British Columbians.
BCFSA has reviewed certain legitimate charitable donation activities against the section 152 prohibition, and against the likelihood that a court might find that activities are captured by section 152.
1. Advertising or Holding Out as a Purchaser of Life Insurance Policies:
BCFSA is of the view that the solicitation by bona fide charities of donations of life insurance policies or benefits is generally not prohibited under section 152 of the Act.
2. Trafficking or Trading in Life Insurance Policies:
BCFSA considered three donation methods where an insured:
- takes out a new policy in the name of a charity and receives a tax receipt for the premiums the donor pays;
- names the charity as the beneficiary of an existing policy, the charity receives the benefits at time of death, and the estate receives a tax receipt;
- transfers ownership of an existing policy to the charity and receive a tax receipt for the cash value of the policy.
BCFSA is of the view that, when the donation is made by an insured directly to a bona fide charitable organization, none of these three donation methods are generally prohibited by section
52 of the Act.