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Leaving a Legacy with Life Insurance

By December 28, 2023 Advisor, Blog, Consumer, News

Life insurance is more than just a safety net. It’s a powerful tool for leaving a lasting impact on both your family and your community. With the right policy, you can help secure your family’s financial future and have the opportunity to contribute to causes that matter to you.

If you care about making a difference, life insurance can be a strong foundation for charitable giving. By naming a charity as a beneficiary, you can make a long-lasting impact on a cause you’re passionate about, making your policy reflect your values and goals.

Using Life Insurance to Leave a Legacy1

Life insurance can be used to leave a legacy in several ways. The most common way is through the death benefit, which is paid out to beneficiaries upon the policyholder’s death. The death benefit can be used to help pay for college tuition, provide a general source of income for a spouse or children, or create a trust fund that supports the family’s financial goals. Such a gift also allows for transmitting values and aspirations from one generation to the next. Imagine a life insurance payout helping to enable a grandchild to start a business or invest in a cause they are passionate about. In this way, the policy can help make their dreams a reality.

Life insurance can also be used to create a lasting impact on one’s community or society. It can be a transformative instrument for societal good and intergenerational legacy-building. For instance, designating a charity or non-profit organization as the beneficiary can breathe life into long-term projects and missions, allowing these organizations to plan and execute more ambitious goals.

Strategies for Using Life Insurance to Leave a Legacy

Naming Beneficiaries

Designating beneficiaries, such as children or grandchildren, in your life insurance policy provides them with financial support but also allows you to leave a meaningful legacy. This financial cushion can help empower younger family members to take calculated risks in their personal and professional lives, such as pursuing higher education, embarking on entrepreneurial ventures, or even dedicating time to worthy causes. Ensure the designated beneficiaries are explicitly named and their relationships to you are clearly stated. This avoids any potential ambiguity or legal challenges after your passing. Always name secondary or contingent beneficiaries who will inherit the death benefit if the primary beneficiaries are unable to.

Charitable Giving

Naming a charitable organization as your policy’s beneficiary can create an avenue for impactful societal change. Before naming a charity, research its mission, effectiveness, and financial stability. Your intention is to make a positive impact, and you’ll want to ensure the organization can deliver on its promises. It’s beneficial to leave a letter of intent that outlines your wishes and hopes for how the money will be used. While not strictly necessary, notifying the charity of your intention can make for a smoother transition and allow them to recognize and honour your future contribution.

Establishing a Trust

Placing your life insurance policy within a trust adds an extra layer of control and security over how the policy’s proceeds will be distributed upon your death. A trust can provide a structured way to distribute funds to family members or charitable organizations without going through the often lengthy and expensive probate process. Depending on the type of trust, life insurance proceeds can potentially be excluded from your taxable estate, thereby reducing or eliminating estate taxes.

Clearly articulate the purpose of the trust and how the life insurance proceeds should be utilized. You must carefully select a trustworthy and competent trustee. This person will manage the trust assets according to your stipulations, so choose wisely.

Gifting a Life Insurance Policy

Gifting a life insurance policy to a loved one or a future generation is another way to ensure their financial security and impart values and beliefs. The recipient should understand that life insurance is a long-term commitment that requires regular premium payments to keep the policy in force. If the recipient is not financially stable, consider setting up a way to fund them initially. This ensures that the policy remains active and provides the intended security.

Using Life Insurance in Estate Planning

Incorporating life insurance into your estate planning is another savvy strategy that provides financial peace of mind. It can act as a tax-efficient method to leave money for your loved ones, and to allocate this as you see fit, Life insurance can act as one of many legacy planning tools in your overall estate plan.

Selecting Life Insurance for Legacy Planning

Coverage Amount

Selecting the appropriate coverage amount is a vital step in the life insurance process. It’s crucial to assess your financial obligations, your dependents’ needs, and any philanthropic goals you might have. A common recommendation is to opt for coverage at 10 or 15 times your annual income. But also consider your future earning potential, adjusted for inflation and discounted back to the present value. This figure can provide a more holistic view of the financial void that could be left in your absence. If you have illiquid assets like property, a sufficiently large life insurance policy can help provide the liquidity needed to pay estate taxes or other financial needs for your loved ones, potentially preventing a fire sale of the assets.

Beneficiary Designations

Equally important is the thoughtful designation of beneficiaries. Your chosen beneficiaries should mirror your wishes, determining who will receive the death benefit and in what proportions. Regular review is crucial during significant life events, such as marriages, divorces, or births, to ensure that the death benefit will be allocated as you intended.

Tax Implications

Depending on the jurisdiction and the policy type, tax benefits or liabilities could influence your financial strategy. In Canada, if you decide to sell or transfer your life insurance policy to someone else, you might have to pay extra taxes. For instance, if your policy has a cash value that has grown over time, transferring the ownership might require paying taxes on the gains. It’s crucial to be aware of these potential tax liabilities to avoid surprises. Depending on your objectives for transferring the policy, look for options to avoid triggering a tax event. Your tax advisor can help you explore alternatives.

If charitable giving is part of your legacy, creating a trust fund, such as a Charitable Remainder Trust (CRT), can offer considerable tax advantages. With a CRT, the assets, including the death benefit from the life insurance, can bypass probate and estate taxation. The trust can provide income to individual beneficiaries first, with the remaining funds distributed to a charitable organization tax-free upon the trust’s termination.

Canada Protection Plan offers life insurance policies that require no medical2 examinations or feature simplified underwriting processes. Begin a meaningful conversation with a CPP insurance specialist today to assess life insurance options suitable for your situation. It’s your first step in building a lasting financial legacy.

1Foresters and Canada Protection Plan (CPP), and their employees and life insurance representatives, do not provide, on Foresters behalf, financial, estate, legal or tax advice. The information given here is merely a summary of our understanding of current laws and regulations. Clients and prospective purchasers should consult their financial, estate, tax or legal advisor regarding their situation.
2Insurability depends on answers to medical and other application questions and underwriting searches and review.
Canada Protection Plan is one of Canada’s leading providers of No Medical and Simplified Issue Life Insurance. Our mission is to provide reliable protection and compassionate service from coast to coast with easy-to-purchase life insurance, critical illness insurance and related products. Our expanding product choices will help you get the coverage and peace of mind you need for a better financial future. Canada Protection Plan products are available through over 25,000 independent insurance advisors across Canada.

422817 CAN (12/23)

To learn more about Canada Protection Plan and our line of comprehensive No Medical and Simplified Issue life insurance solutions, call Broker Services at 1-877-796-9090 and we will be happy to assist you or put you in contact with Sales support in your region.

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