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A Good Deed Now Goes Unpunished: British Columbia Changes Course on Donations of Life Insurance Policies to Charity

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Charities Bulletin

British Columbians can donate life insurance policies to charities and charities can solicit such donations without penalty, says the BC Financial Services Authority (BCFSA).

In November 2019, it had become publicly known that the BCFSA (the provincial agency that administers the Insurance Act) took the position that such activities breached section 152 of the Act.

Section 152 makes it an offence for persons other than insurers or insurance agents to advertise or hold out as purchasers of life insurance policies, or to traffick or trade in such policies.

In a May 1st, 2020 bulletin (PDF), the BCFSA has now clarified that section 152 generally does not prohibit:

1) bona fide charities from soliciting donations of life insurance policies or benefits; and

2) insureds from:

a) taking out a new policy in the name of a bona fide charity;

b) naming a bona fide charity as the beneficiary of an existing policy; and

c) transferring ownership of an existing policy to the bona fide charity.

This recent announcement restores the status quo ante that existed in BC before November 2019. Charitable organizations and donors can now once again generally use life insurance policies as a tool in their fundraising or charitable giving activities without compliance concerns under the Insurance Act.

Charities and donors should be aware of a few additional items in the BCFSA’s recent bulletin:

The BCFSA’s position is not a blanket position. It is subject to an assessment of the facts in specific cases. As the BCSFA notes, the intent behind section 152 is to protect vulnerable British Columbians. While it supports legitimate charitable giving, the agency will review and investigate any practices that may involve vulnerable British Columbians or that otherwise appear to harm the public.

The BCFSA encourages the charitable giving community to adopt best practices that both support charitable giving and protect donors’ interests. It is expected that industry groups such as the Canadian Association of Gift Planners will provide further directions on such best practices and charities operating in BC would be prudent to consider their advice.

We also note that the charities soliciting or receiving donations of life insurance policies must be bona fide charities. The bulletin does not define “bona fide charities”. While legitimate charitable organizations that are registered with the Canada Revenue Agency and able to issue tax receipts should almost certainly qualify, it is somewhat less clear whether “bona fide charities” would include private or public foundations or other “qualified donees” as defined in the Income Tax Act (such as registered housing corporations, municipalities, or the Crown). The reason for this is that the BCFSA bulletin uses the phrase “charitable organization”, which is a recognized term used in the Income Tax Act, but, in that Act, the phrase “charitable organization” does not include “private foundations”, “public foundations” or “qualified donees”. This seems likely to be the result of the BCFSA’s casual use of the phrase “charitable organization” rather than a deliberate policy, but Fasken is seeking further clarification from the BCFSA.

Donating or accepting a life insurance policy is a complex topic, with issues and risks relating to gift receipting, valuation, ownership, and taxation. The BCFSA encourages donors and charities to seek independent legal advice to ensure that their activities comply with the Insurance Act. If you have any questions or need assistance with respect to charitable giving, compliance, or communications to donors, please feel free to contact Dierk Ullrich, Stephen Hsia, or another member of our Trusts, Wills, Estates and Charities Group.


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