Update on gifts of life insurance policies to charities in British Columbia

British Columbia’s Financial Services Authority has clarified that the solicitation of donations of life insurance policies by charities is not generally prohibited by the Insurance Act.

This clarification addresses concerns raised in our November 2019 publication describing communications from the BC Financial Services Authority (BCFSA) indicating that charities could not solicit or accept gifts of life insurance policies in British Columbia from BC residents as it constituted trafficking in insurance policies contrary to the Insurance Act of British Columbia. We are pleased to report that on May 1, the BCFSA published Bulletin INS-20-003 on its website that clarifies its position regarding gifts of life insurance policies to charities.

The BCFSA states that the solicitation of donations of life insurance policies by bona fide charities is not generally prohibited by the Act.

Further, it states that there are three donation methods, whereby the donation of a policy is made by an insured to a bona fide charity, which are not generally prohibited by the Act.

Those methods are:

• an insured purchases a new policy in the name of a charity and receives a tax receipt for the premiums paid by the donor;
• an insured names the charity as the beneficiary of an existing policy, the charity receives the death benefit on the death of the insured, and the insured’s estate receives a tax receipt; and
• an insured transfers ownership of an existing policy to a charity and receives a tax receipt for the cash value of the policy.

The BCFSA’s clarification of its position is very welcome news to the sector, and particularly for the third method, which was of great concern. There remain certain points on which to seek further guidance, for example, what does a “bona fide” charity mean, and what if the policy owner and the insured under the policy are not one and the same (for example, with corporately owned policies that insure the life of a key individual)? While it should also be noted that the BCFSA certainly indicates that it retains the power to review practices that may pose a risk to the vulnerable, it is clear that registered charities in British Columbia can now both solicit, and accept gifts of life insurance policies.