Every year less than 1% of Canadian registered charities identify in their T3010 receiving a life insurance policy for which they issued an official donation receipt.  (See Schedule 5 to the Blumbergs Canadian Charity Sector Snapshot 2017).  That being said for some charities can result in quite a bit of value.

There have been some concerns expressed by provincial regulators of insurance that in some cases a charity may be “trafficking” in life insurance.   I have seen 2 situations over the last 3-4 years where charities that focussed exclusively on donations of life insurance were receiving scrutiny from provincial regulators.  In other words, thousands of charities are asking for donations of life insurance and few run into any regulatory issues in this area.

I recently received an email from the BC Financial Services Authority.

It noted:

I understand you’re seeking further clarification on BCFSA’s position on the issue of charitable donations of life insurance policies. I’m writing to advise that BCFSA has undertaken a thorough review of common life insurance donation scenarios and the application of section 152 of the Insurance Act (IA) to those scenarios.  The resulting Information Bulletin No. INS-20-003 is included here for your reference:  https://www.bcfsa.ca/pdf/insurance_bulletins/INS-20-003.pdf.

Pursuant to the Information Bulletin, 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 IA. Please note that BCFSA’s interpretation and application of the Act is subject to an assessment of the facts in specific circumstances.

What is still not clear is what is a ‘bona fide’ charity’?  It appears that not all registered charities are bona fide.    The BCFSA also says “solicitation by bona fide charities of donations of life insurance policies or benefits is generally not prohibited under section 152 of the Act (my emphasis).  As also emphasized is the application of the Insurance Act is based on an “assessment of the facts in specific circumstances”.   They also note “we will review and investigate any practices that may involve vulnerable British Columbians or are otherwise suggestive of practices harmful to the public.”

In their memo they note the definition of trafficking:

 

LEGISLATION
Section 152 of the Act states:
Trafficking
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.

BCFSA’S POSITION

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:
i. takes out a new policy in the name of a charity and receives a tax receipt for the premiums the donor pays;
ii. 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; and
iii. 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 152 of the Act.

BCFSA’s interpretation and application of the Act is subject to an assessment of the facts in specific circumstances. While 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. 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.  BCFSA encourages the charitable giving community to seek independent legal advice to ensure its activities are structured in compliance with the Act.

 

Here is a copy of the BC Financial Services Authority memo on gifts of life insurance to charities.