Mr. A is the policyholder of a universal life insurance policy on his life that includes a return of premiums on death (ROPD) rider, which provides for the payment of an additional premium to the required base premium for the life insurance portion and allows for the payment of an additional benefit following the death of Mr. A equalling the total premiums paid by Mr. A. A registered charity is the beneficiary of the death benefit, and Mr. A's estate is entitled to the ROPD benefit.
CRA stated:
The payment of the insured sum is an obligation of the insurer and, subject to subsection 118.1(5.2), cannot be considered a gift from the policyholder since the proceeds of the life insurance policy never formed part of the patrimony of that person.
However, if subsection 118.1(5.2) applies, the payment by the insurer to the registered charity as a consequence of Mr. A's death will be deemed to be a gift made by the individual to the registered charity immediately before his death. The fair market value of that gift is then deemed to be equal to the fair market value, at the time of Mr. A.'s death, of the qualified donee's right to the transfer of money from the insurer, determined without taking into account the risk that the insurer will default. …
CRA then went on to summarize s. 248(35) and to note that “subsection 248(37) excludes several types of gifts from the application of proposed subsection 248(35) but does not exclude a gift of a life insurance policy.”