B.C.’s financial services regulator has confirmed that gifts of life insurance to charities won’t generally be considered trafficking in life insurance, but further clarity is being sought.

In a bulletin dated May 2020, the B.C. Financial Services Authority (BCFSA), which has overseen financial services in the province since November 2019, clarified its position on the interpretation and application of Section 152 of the province’s insurance act.

The legislation, which prohibits third-party purchasing or trafficking in life insurance policies, aims to protect vulnerable policyholders, such as seniors. Seven other provinces have similar legislation.

Last year, based on correspondence between the BCFSA and a registered charity, concern arose about whether B.C.’s legislation prevented charitable donations of life insurance policies, as well as the solicitation of policies by charities.

In the bulletin, the regulator said the solicitation by “bona fide” charities of donations of life insurance policies or benefits is “generally” not prohibited by Section 152.

While that statement provided some clarity, it also raised new concern. In a blogpost on Tuesday, Mark Blumberg, a partner at Blumberg Segal LLP in Toronto, noted the regulator’s use of both “bona fide” and “generally.”

Regarding the former, he wrote: “What is still not clear is what is a ‘bona fide’ charity’? It appears that not all registered charities are bona fide.”

The bulletin repeated the terms when it addressed the anti-trafficking legislation in connection with three methods of donating a life insurance policy:

  • taking out a new policy in the name of the charity and receiving a tax receipt for the premiums the donor pays;
  • naming the charity as the beneficiary of an existing policy, with the charity receiving the benefits at death and the estate receiving a tax receipt; and
  • transferring ownership of an existing policy and receiving a tax receipt for the policy’s cash value.

“When the donation is made by the insured directly to a bona fide charitable organization, none of these three donation methods are generally prohibited” by the anti-trafficking legislation, the regulator said.

Ultimately, each case will be considered on an individual basis. The BCFSA’s bulletin said that its interpretation and application of the legislation is subject to the facts of a specific case, with a particular focus on vulnerable policyholders.

“While BCFSA supports legitimate charitable giving in compliance with the law, we will review and investigate any practices that may involve vulnerable British Columbians or are otherwise suggestive of practices harmful to the public,” the regulator said.