The following excerpt is from Multiplying Generosity Using Insurance - The Fundraiser’s Guide to Using Insurance for Charitable Giving, a new book published by Hilborn's Civil Sector Press.           

Giving using insurance is the second most popular way for Canadians to make estate gifts. Yes, this only constitutes about 5% of planned gifts, but if more people understood the benefits of giving in this way, and got advice that allowed them to structure effective and guaranteed gifts, charities could get larger gifts leveraged by insurance.

Here are seven excellent reasons why it’s unwise to exclusively promote legacy giving through traditional bequests. The bequest-related problems noted below can be reduced if donors use guaranteed life insurance and insurance products to make their gift outside of their estate. 

1. A bequest written into a Will is not a guarantee that your charity will get it.

• Donors can lose interest in your charity as their priorities change in life, leading them to name another charity.
  
  
• Donors can become annoyed with your charity. Perceived poor customer- service or stewardship, lack of information on how their donations are used, or an organizational faux-pas that gains negative media coverage can all lead donors to change their wills. Or your donors may be shocked to discover that all your charity’s workers are not unpaid volunteers and that some staff make a salary that they feel is much too high.
  
  
• Dwindling funds may cause donors to eliminate bequests using their assets to cover living expenses or to leave more to loved ones. But if a donor has already fully funded a life insurance policy and has named your charity as its owner and beneficiary, you will be guaranteed to receive the policy’s full death benefit when the donor dies.
  
  
• There are a surprising number of donors’ kids expecting that the entirety of their parents’ residual assets will pass on to them. It is always unexpected, but fundraisers have told me stories that a bequest donor’s final days, children have gone as far as convincing their confused mother that her charitable bequests are inappropriately large or simply unnecessary, and show up at Mom’s deathbed with a lawyer and a revised Will to sign. This sounds horrifying, but it happens more often than you’d care to imagine.

Yes, it’s true that a donor can easily change the beneficiary of a gift of insurance. But if they make your charity the owner and beneficiary of their insurance gift or an irrevocable beneficiary, you’re guaranteed to get the gift within two to three weeks of the executor making a claim with the insurance company.

2. Charitable beneficiaries of Will proceeds can be contested.

The prospect of getting an inheritance can make people do out-of-character things. Beneficiaries can dedicate themselves to finding a loophole surrounding their benefactor’s bequests, or claim that their benefactor was not in his or her right mind when signing their Will. Or, if a charitable beneficiary is not clearly named (e.g. “The Cancer Association”) a tug-of-war can ensue between charities with similar names. Contested bequests can be tied up in messy legal proceedings for years.

Typically the only person who can challenge a gift of insurance is a dependent spouse or child.

3. Lawyer’s fees, executor’s costs, creditors, probate taxes and federal taxes can eat away at traditional bequests.  In comparison, the final value of an insurance gift is guaranteed and normally will not be diminished by taxes, fees, or creditors’ payments.

4.   Bequests from Ontario donors may be delayed by four or more years.

Changes to the Ontario Estate Administration Tax Act allow the Minister of Revenue to assess or reassess an estate for its tax payable for up to four years following the executor filing for probate.

Gifts of insurance do not fall under this amendment. 

5. Giving through insurance may allow your donors to leave your organization significantly larger gifts. 

Life insurance can have a multiplying power that allows a relatively small investment to provide a huge tax-free death benefit that can grow even larger over the donor’s lifetime. In addition, because insurance benefits are guaranteed to be paid out to the policy’s beneficiary, your charity will still receive the full value of the policy’s death benefit. 

6. If your charity is in dire straits and is the owner and beneficiary of a gifted policy, you can surrender the policy and use its cash value for current needs. The same cannot be done with a charitable bequest made through a Will.

7. If your charity is the owner of a gifted policy and the donor stops making the payments, it is possible that if the policy has accumulated sufficient cash value, these funds can be used to convert the existing policy into a fully-funded policy for a lower death benefit. This will likely provide your charity with a larger gift than simply collapsing the policy and claiming its cash value. Depending on the circumstances surrounding the policy, your charities may seek other donors to take over the premium payments.

In summary, introducing the idea of using insurance for charitable giving to your donors can result in a win-win situation. Donors will be happy to leverage their donations into much larger, guaranteed gifts that go swiftly to fund your good works. And, your charity will be able to do more with these guaranteed gifts, especially those that are dramatically increased by taking advantage of the multiplying power of insurance.

Marlena McCarthy has worked with charities since 1982 in marketing communications and fundraising. As Founding Partner and Fundraising and Communications Director of Bequest Insurance (www.bequestinsurance.ca), Marlena works with charities to help create income streams from gifts of life insurance and insurance products by creating simple yet gripping promotional materials.

As a founding partner of Bequest Insurance, Jack Bergmans is one of Canada’s leading experts in integrating insurance into financial, estate and legacy planning. Jack is a Certified Financial Planner and has been in the investment industry since 1996. As a licensed insurance broker he works with individuals and organizations providing independent financial, investment and retirement advice, and is also an estate planning and legacy giving specialist.