BCFSA Clarifies Position on Gifts of Life Insurance
May 2020 Charity & NFP Law Update
Published on May 28, 2020

By Theresa L.M. Man


As previously reported in the February 2020 Charity & NFP Law Update, the British Columbia Financial Institutions Commission (“FICOM”), now the BC Financial Services Authority (the “BCFSA”), had taken the position in November 2019 that charities soliciting or accepting donations of life insurance policies from BC residents was considered “trafficking” in contravention of s. 152 of BC’s Insurance Act. However, the BCFSA has since clarified its position on the matter through the release of Bulletin INS-20-003, Charitable Donation of Life Insurance Policies in British Columbia (the “Bulletin”) on May 1, 2020.

The Bulletin indicates that s. 152 of the Insurance Act prohibits (1) advertisement, or holding out, as a purchaser of life insurance policies or of the benefits under life insurance policies; and (2) 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. It further indicates that purpose of the s. 152 trafficking prohibition is to protect vulnerable British Columbians.

In clarifying the BCFSA’s position, the Bulletin states that BCFSA is of the view that s. 152 does not prohibit bona fide charities from soliciting donations of life insurance policies or benefits. Further, where an insured donates directly to a bona fide charitable organization, s. 152 does not prohibit the donation where (1) the insured has taken out a new policy in the charity’s name and receives a tax receipt for the premiums paid by the donor; (2) the charity is named as the beneficiary of an existing policy, receives the benefits at time of the insured’s death, and the insured’s estate receives a tax receipt; or (3) the insured transfers ownership of an existing policy to the charity and receives a tax receipt for the policy’s cash value.

Despite the above, the Bulletin further states that the BCFSA’s interpretation and application of the Insurance Act is fact- and case-specific. In this regard, the BCFSA will review and investigate matters that may involve vulnerable British Columbians, as well as other actions that may be harmful to the public. As such, the Bulletin encourages the charitable community to adopt best practices that support charitable giving and protect donors’ interests.

With the release of the Bulletin, the BCFSA has provided greater clarity to the charitable sector in BC about the legality of soliciting and accepting gifts of life insurance. However, as pointed out in a letter from the Canadian Association of Gift Planners (“CAGP”) to BCFSA on May 14, 2020, there remains a number of technical issues that still require clarification: what is meant by a “bona fide” charity, is the term “charitable organization” merely a general reference to registered charities rather than the technical designation of “charitable organization” under the Income Tax Act, is the donation by an owner of a policy (who is not the insurer) acceptable, are donation receipts restricted to “cash surrender value”, as opposed to fair market value required by the Income Tax Act, and whether any due diligence is required to “protect vulnerable British Columbians.”

Read the May 2020 Charity & NFP Law Update