Alberta Releases Interpretation Bulletin on Donations of Life Insurance
June 2022 Charity & NFP Law Update
Published on June 29 2022

By Ryan M. Prendergast
   
 

The Alberta Superintendent of Insurance has clarified its stance on charitable donations of life insurance in Alberta through Interpretation Bulletin 04-2022, Charitable Donations of Life Insurance (the “Bulletin”), published on May 27, 2022. Insurance industry regulators have, for some time, expressed some concern over donations of life insurance. The British Columbia Financial Institutions Commission, now the BC Financial Services Authority (the “BCFSA”), for example, took the position in November 2019 that charities soliciting or accepting donations of life insurance policies from BC residents was considered “trafficking” in contravention of BC’s Insurance Act. As discussed in the May 2020 Charity & NFP Law Update, however, the BCFSA clarified that bona fide charities were not prohibited from soliciting donations of life insurance policies or benefits.

In Alberta, the Insurance Act prohibits trafficking or trading in life insurance policies to prevent third parties from taking advantage of vulnerable individuals, and that only licensed life insurance companies are permitted to buy, sell, or transfer the benefits under life insurance policies. However, the Bulletin sets out the Alberta Superintendent of Insurance’s position that “in certain specified circumstances, the donation of life insurance policies to bona fide charities is not trafficking in life insurance.”

The Bulletin outlines three acceptable methods for donating life insurance to a bone fide charity under the Insurance Act, including:

i) Where a life insured takes out a new policy in the name of a bona fide charity and receives a tax receipt for the premiums paid;

ii) Where a life insured names a bona fide 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) Where a life insured transfers ownership of an existing policy to a bona fide charity and receives a tax receipt for the cash value of the policy.

Where a charity meets the section 149.1 definition for “charity” under the Income Tax Act, donations made in accordance with the above-noted methods would not be considered trafficking. Similar to BC, this includes include solicitation by bona fide charities of donations of life insurance policies or benefits.

The Bulletin states that it “supports legitimate charitable giving in compliance with the law”, and that the Superintendent’s office may investigate any conduct, acts or practices that do not support this same interpretation. It is therefore important that insurance companies, as well as donors and charities soliciting or gifting life insurance policies in Alberta, review and understand the Bulletin in order to comply with the Insurance Act.

   
 

Read the June 2022 Charity & NFP Law Update