It's natural that if we're successful, we want to give something back to the less fortunate and help them. Not many people know, but life insurance plans provide a way in which you can make larger gifts than you might though possible. In this article, you'll learn about some of the different ways you can benefit your favourite charity and minimize your tax burden using life insurance as a charitable gift. Here are a few good ideas:

Many people are unaware of the increased contribution they can make to charities by using more creative methods of giving. Careful planning can result in larger amounts being available to meet your philanthropic goals and help others in need.

As a business owner, you may rely on a number of key people for the successful operation of your company. Many businesses have been built around the strengths and skills of a few individuals whose capital, energy, knowledge, or experience makes them a valuable asset to the organization.

Key person insurance can help preserve the value of your business and its continuation in the event of the death of a key stakeholder in the company. Replacing the expertise and knowledge of an essential individual can take time and money and can jeopardize the continuity of the business. A key person life insurance policy offers the following benefits:

The employer would be the owner and beneficiary of the policy. The key employee would be the life insured, but would receive no benefit from the existence of the policy. Under the “Income Tax Act” no deduction can be claimed by the employer for premiums paid under a key person policy. However, any death benefit proceeds would be received tax free by the employer and would provide the liquidity needed to hire and train new skilled individuals and provide cash flow through a period of sales decline.

Example: George Smith is the owner of a growing software company that employs 20 full-time workers. He relies heavily on Frank, his manager, to look after the day-to-day operations of the business while he is out dealing with clients and looking for new business. Frank dies suddenly of a massive heart attack. Obviously this has an emotional impact on the company but it also has a financial impact.

The “key person” life insurance policy that George has purchased on Frank’s life provides the company with a tax free lump-sum payment, enabling him to overcome what might have been a deadly blow to his business. The insurance provides immediate cash to cope with reduced profitability, resulting from his manager’s absence. There will also be funds available to pay an employment agency to find a replacement and reassure creditors that company is on solid footing.

Similar type programs can be set up to protect against a critical illness or the disability of a key employee.

Insuring a child’s life can be a delicate subject, but can make financial sense, depending on your families financial situation.

Traditionally life insurance is used to protect an individual’s family from an untimely death; for example a couple has two small children. If a primary-income earner dies, where is the money going to come from to replace the lost income? Most young couples will not have accumulated enough capital to sustain the lost of income. Without life-insurance, the consequences can be dire – the house that the family has worked years to obtain, may be lost and the family’s standard of living is therefore drastically altered.

Again, when analyzing your family’s life insurance needs, the first order of business is to insure the primary-income earners. In most instances, excluding young Hollywood stars, children are not income earners and while a child’s death would have a huge emotional impact, it would not have a dramatic financial impact. Having said that, assuming that all of your financial bases are covered, insuring a child can make sense and can also offer many long-term benefits.

Insuring a child at a young age guarantees that he or she has insurance now and has the ability to get insurance in the future. This will protect the child’s ability to obtain insurance against future health problems, such as asthma or cancer; it will also protect the child against risky occupations such as becoming a firefighter or pilot. Most life-insurance policies give you the option of adding a guaranteed insurability rider which allows the child to upgrade his/her insurance in the future, without a medical.

Permanent policies also allow your child to lock in at very favourable rates and can be paid up in a limited number of years. The policy can generate cash value which is available in the case of an emergency or to help supplement the child’s retirement income.

For those cases, where one or both parents have hereditary health issues, insuring a child may have an added importance; for example a couple has a history of diabetes and colitis within their immediate family. Insuring their newest addition at a very young age creates a safety-net against the child developing future health issues. A child who eventually has a family of his/her own may have developed health issues in the interim and as a result, may not be able to obtain new insurance; even if it possible to obtain the insurance, a new policy may have a large sur-premium due to health issues.

Permanent policies can also give the child’s future family added financial flexibility – the cash value can be used towards a down payment on a new home or as collateral for a loan to start up a new business venture.

You bought life insurance with the understanding that if you died your family would be protected. How do you make sure those financial benefits will be there for them? Understand your contract.

All life insurance policies have an “incontestability period” – a time limit (usually two years) during which the life insurance company has the right to dispute a policy’s validity based on information provided incorrectly on the application. Even though an inspection report is obtained, and in some cases a medical examination is performed, the company relies a great deal on the answers given on the application when deciding whether or not to issue a policy. It is important to remember that if an applicant fails to disclose information that would cause a policy not to be issued or to be differently rated, the policy may be withdrawn or a claim may be denied within this period.

With the policy in force after the incontestability period ends, the insurance company no longer has the right to deny claims or rescind the contract even if a misstatement in the application is discovered. The policy owner will receive all the benefits as stated in the contract – claims will be paid and the policy cannot be withdrawn. This provision, however, does not apply in cases of fraud.

Life insurance contracts also have a suicide clause, which specifies that the proceeds of the policy will not be paid if the insured takes his or her own life within a specified period of time (usually two years) after the policy is issued.

Many people don’t realize that if they replace an existing life insurance policy with a new policy, they will be subject to a new incontestability and suicide period.

Another detail to examine when reviewing your life insurance contract is policy exclusions – an “exclusion” is a statement in a policy which describes a condition or type of loss that is not covered by the policy. A common exclusion is an exception for accidental death caused by an “act of war” or death “while in active military service.” Applicants who participate in hazardous activities such as skydiving or acrobatic flying may also have death exclusions in their policy as a result of these high-risk activities. Another exclusion to be aware of is a limitation on the policy payout if the insured is injured or dies in a restricted country. Many insurance companies will either add a surplus premium or an exclusion clause for frequent visits to what they deem to be a high-risk region. It is crucial that the policy-holder is made aware of these details by his broker, and understands the potential implications.

The application wording can vary from company to company, and this can have a direct impact on any exclusions inserted in the resulting policy. As an example, Company A asks whether “the insured has or plans to travel outside of North America in the next 12 months,” while Company B asks whether “the insured has or plans to travel outside of North America in the next 36 months.” This slight difference may result in Company B adding a travel exclusion clause to its policy, while Company A’s policy will not have one.

Buying life insurance is a prudent and selfless decision, but be sure that you fully understand the contract – its terms, conditions, limitations and exclusions – before you sign on the bottom line. Any ambiguities should be cleared up to your satisfaction by your adviser, and noted in writing.

There are many factors to consider when choosing the right insurance company. Price is obviously high on the list, but there is more to it than simply selecting the company with the lowest premiums. Other important factors to keep in mind when selecting a life insurance company:

Does the company offer a broad range of policies? Many insurance companies focus on certain niche products, such as Long Term Care, while others have a mandate to have a complete and competitive product lineup. If you are working with an independent broker, it may be in your best interest to insure yourself with multiple companies.

Life insurance is a long-term commitment, therefore you want to make sure the company is on solid footing. You can verify the insurance company’s financial stability by gathering information from rating services, such as AM Best (www.ambest.com). It becomes of increased importance if the policy exceeds $200,000, the maximum death benefit amount covered by Assuris (formerly Compcorp). Assuris protects Canadian life insurance policyholders against loss of benefits due to financial failure of a member company.

What kind of claims service does the company offer? How have existing clients been treated during the claims process? You may want to check with a national claims database to see if there are any outstanding customer complaints on the company.

Some insurance companies only operate in certain regions of the country, and this could make ongoing service difficult if, in the future, you move to an area where the insurance company does not do business.

Some life insurance companies go through phases where they are actively pursuing new business, which may be reflected in the company’s premiums and the degree to which they are accepting new business. This is where an experienced independent broker, who is in tune with the marketplace, can save you a small fortune over the life of your policy. Insurance companies often have differing guidelines on their acceptance protocol for different illnesses. If you catch a company at the right stage of their business cycle, it can mean the difference between qualifying or being declined for insurance.

Some insurance companies have an in-house sales force which means their agents are only allowed to represent the company's products. This often skews the agent’s advice, as he/she cannot offer an unbiased opinion. Insurance companies who use the independent brokerage channel create a level playing field and provide less biased advice for the consumer, allowing their sales force to work in the client’s best interest.