To donate life insurance, there must be a clear relationship between the donor and the charity prior to the gift being made. That relationship can be a history of giving or volunteering, use of the charity’s programs or services by the donor or their family, or an otherwise clearly established interest in the organization’s mission or mandate.

This is the most recent advice from the Canadian Association of Gift Planners (CAGP), spelled out in a series of guides for donors, advisors, charities and insurance companies alike.

The guides were developed after it was recommended by the British Columbia Financial Services Authority (BCFSA) that interested parties develop best practices for use when insurance products are being used for charitable donation purposes.

“While the BCFSA supports legitimate charitable giving in compliance with the law, we will review and investigate any practices that may involve vulnerable British Columbians or are otherwise suggestive of practices harmful to the public,” the BCFSA wrote in a May 2020 bulletin on the charitable donation of life insurance policies in British Columbia. “To that end, we encourage the charitable giving community’s adoption of best practices that both support charitable giving and protect the interests of donors.”

The comments came after the regulator’s predecessor organization, the Financial Institutions Commissions (FICOM) reportedly came down on at least one British Columbia charity, saying it was of the opinion that accepting donated life insurance policies was considered trafficking under the province’s Insurance Act. The BCFSA’s May 2020 bulletin backtracking on that advice stated that donations made by an insured directly to a bona fide charitable organization, would not be prohibited.

“The CAGP has stepped up with this initial set of best-practices and will continue to engage with both the charitable and insurance sectors to provide educational resources for all parties.” - Ruth MacKenzie

Still, the regulator’s admonition that the sector come up with best practices compelled the CAGP’s volunteers and a number of other stakeholders as well, to develop the guides, including the Charitable Donations of Life Insurance Guidelines for Canadian Advisors, Guidelines for Canadian Insurers, Guidelines for Donors and Guidelines for Canadian Charities. The seven-part series also includes three supplemental documents including Understanding Tax Receipting of Charitable Gifts of Life Insurance, How to use Life Insurance as a Charitable Gift, and What is Insurance Trafficking?

“The CAGP has stepped up with this initial set of best-practices and will continue to engage with both the charitable and insurance sectors to provide educational resources for all parties,” says CAGP president and CEO, Ruth MacKenzie. “CAGP is very excited at the engagement shown so far. We are open to working with the entire sector.”

Higher industry standards promote the protection

As for whether or not the guidelines are sufficient, the BCFSA was not available for comment, except to write that it welcomes the CAGP’s development of charitable best giving practices. “We are particularly pleased to see the focus on helping donors make informed choices,” they say.

“Higher industry standards promote the protection and fair treatment of British Columbians as they make important financial decisions.” (When the regulator’s initial stance was made public, it set shockwaves throughout the sector in all provinces, as many national charities that are based in British Columbia were prohibited from accepting life insurance donations, and many others across the country adopted a wait-and-see approach to see if other regulators would follow B.C.’s lead.)

In addition to common wording related to the establishment of a valid relationship between donor and charity, the guides each include a signature page so recipients can acknowledge receipt of the appropriate guide from whomever is providing it. (The guides are designed such that they might be provided by a charity or advisor to a would-be donor or to the insurance company underwriting or transferring the policy in question. Advisors and donors might also provide the guides to the charities they wish to support.)

The role-specific information contained within the guides includes advice specifically for charities, for advisors, for donors and for insurance company representatives working on underwriting or transferring the policies in question.

For charities: Advice from the CAGP includes an extensive checklist, including recommended due diligence, questions to ask before accepting a gift, the types of insurance that charities generally prefer to receive in these circumstances, and advice for working with advisors.

For advisors: Best practices are provided for establishing a valid relationship between a charity and a donor, along with due diligence items to be aware of when working to create a charitable gift using insurance policies.

For donors:Donor guide includes questions to ask all of those involved (questions to ask insurers, advisors and charities), and encourages donors to talk to charities directly when planning a gift of insurance.

For insurers: Guidelines examine how to evaluate the legitimacy of an existing policy transfer, including red and yellow flags. The guide also provides extensive underwriting guidance for new policies.

“We wanted to make sure the charities of all sizes, even those who've never done a gift before, at least had a really good, thorough starting spot,” says CAGP volunteer and chair of the working group on life insurance donations, Ryan Fraser, in a presentation to stakeholders when the guides were first launched.

Informed decisions that minimize regulatory risk

“These are not regulatory documents, or a requirement for any party, but rather a package designed to help all parties make smart and informed decisions that minimize regulatory risk, as well, and perhaps most importantly, to help everyone understand how to make the best quality of donation possible for all parties,” Fraser added in a discussion about the guides with the Insurance Portal. “Beyond dealing with the trafficking issues raised by BCFSA, the documents address a number of important items that have long been a challenge to the charitable sector.”