LifePoint Charitable Foundation, a charity that facilitates life insurance donations, has plans to move to Saskatchewan after being warned by Ontario regulators.
That charity, which is currently based in Toronto and is related to an American organization with the same name, was the subject of a March 2016 Advisor.ca investigation into insurance policy donations.
Under LifePoint’s model, donors sign their policies over to LifePoint, which becomes owner and beneficiary. LifePoint then takes over premium payments, and the donor receives a tax receipt for the policy’s fair value. When the donor dies, LifePoint receives the death benefit and eventually transfers it, minus premiums and administration fees, to an end charity of choice. LifePoint’s now-defunct Canadian website had noted that advisors who facilitated these transfers could earn referral fees.
Advisor.ca has learned that the Financial Services Commission of Ontario (FSCO) sent LifePoint a warning letter following publication of our story, and that the charity plans to move out of province.
In an interview, LifePoint’s director-elect, Daniel Kahan, says he intends to move the group’s headquarters to Saskatchewan, which does not prohibit trading in insurance. “I have a […] recently retired SK government employee willing to allow us to use her home as our address for $50 a month,” he writes in an email. “We will then revive the LifePoint Canada website with some updates and put it back online so that we can ‘solicit’ for the donation of ‘unwanted’ life policies OUTSIDE Ontario.”
Kahan provided documents to Advisor.ca showing that on March 17, 2016, the charity’s founder, Dale Toney, had initially indicated to [FSCO] compliance officers “that LifePoint would be ceasing operation in Canada at the end of December 2016.”
Then, on July 14, FSCO indicated it had “concluded the [LifePoint] website was in contravention of section 115 of the [Ontario Insurance] Act and requested the content be removed as soon as possible. Mr. Toney then stated that LifePoint will be removing the website by the end of July 2016,” according to the documents. LifePoint informed FSCO on July 28 that its website had been taken down.
The next day, FSCO issued LifePoint a warning letter regarding LifePoint’s activities under Section 115 of the Ontario Insurance Act, titled “Trafficking in life insurance policies prohibited.” The letter says, “In this instance, we will not pursue this matter further. However, should we find any further non-compliance with this section this matter may be revisited.”
It’s unclear what part of LifePoint’s website prompted FSCO’s letters. When asked, FSCO declined comment, saying, “To maintain the integrity of our investigations, we can neither confirm nor deny the existence of an investigation, nor do we comment on any specific ongoing matters.” (Update, December 1: Kahan provided Advisor.ca with a December 1 email from FSCO stating that they understand LifePoint is moving to Saskatchewan. The email further says, “Our dealings with LifePoint have, at this time, concluded.”)
Kahan concedes that Saskatchewan is not entirely a safe haven. As a CALU paper notes, “In November 2014, the Saskatchewan government introduced Bill-177 which updates its Insurance Act […]. Draft clause 7-16 contains a trafficking prohibition similar to those contained in the Insurance Acts of other provinces.” That clause has not yet been enacted.
“When they do decide to bring in regulation, we’ll have a legitimate seat at the table” to make a case for trading to be allowed, Kahan says.
Kahan began talks to join LifePoint in September, and expects to be confirmed as a board member this week. An insurance valuator by profession, he had previously worked with LifePoint and, in his words, was “the reason LifePoint came to Canada.” He says Toney and the two current board members will be resigning, adding that the charity is looking for a new CEO.
When told that LifePoint’s communications with donors have been unclear, Kahan responds, “I agree, but I think a lot is unclear because things haven’t developed the way Dale [Toney] was expecting them to develop.”
That expectation, as Toney put it in March, was “to build a portfolio of similar-sized [policies] and similar age of insureds. We end up having a mortality pool. The earlier deaths help supplement the ones that we’re having to pay longer for.” Toney also told Advisor.ca that 60% to 70% of the death benefit would ultimately reach the donor’s end charity over the course of many years – a point not disclosed on the charity’s now-defunct website.
Says Kahan, “We need to go through the website again and make clear that people know what’s going on. If you use [Toney’s] model, you can’t just dish out all the money on day one, because you need to keep money on reserve to pay the other premiums.”
Kahan agrees that LifePoint’s role is to disburse death benefits. “In principle, the idea would be to make sure as much of the money goes to the end charity as possible,” he says. “But you have to pay for the CRA, for your lawyers; there are expenses. As long as expenses are reasonable and disclosed, people can make a judgment call.”
He’s considering subtracting about 7% from the death benefit annually: 5% interest for any premium-payment loans, plus a 2% spread for LifePoint. He says that’s less than what comparable charities charge.
Kahan also acknowledges that donors may want their donation terms in writing, indicating a change from the group’s previous practice. “If the charity signs a legal agreement with the donor, that would be respected,” he says.
Kahan may modify the charity’s structure to also accept paid-up policies – that way, no more premium payments are owing. He will also accept cash donations and loans to fund premiums.
It remains to be seen whether LifePoint can operate successfully in a new province. Even under friendly legislation, donors must still contend with their insurance companies. Our investigation showed that some insurers would not permit policyholders to transfer premium payment responsibility to the charity. Kahan himself had trouble transferring a policy in February 2016; the insurance company told him they considered the transfer a life settlement and disallowed it. While he later convinced the insurer to allow the transfer, he remains frustrated: “To say you can’t do that because we consider that to be a life settlement is completely baloney,” he says.
He calls it “absurd” that Ontario and other provinces disallow life insurance trading, noting that the associated legislation dates back to the 1930s.
“The Ontario government is shirking their responsibility to Ontario consumers,” says Kahan. “I have people coming to me who want to sell their policies; they can’t afford it anymore. Who’s representing the consumers?”
And while our investigation questioned the insurance lapse rates cited by LifePoint, and found that only one policy has been donated to LifePoint since its inception, Kahan insists many people would prefer their unwanted policies “go to a good cause.” He adds: “If I know that [most] of my money is going to a charity, and [a portion] is going to LifePoint – or the alternative is all of it goes to [an insurance company’s] shareholders – I think I know what the policyholder would want to do.”
Indeed, one charity expert told us life insurance is “one of the most transformational gifts that exist because of the ability to multiply the original amount paid for a policy,” but cautioned that the donor needed to understand exactly what he was getting into before proceeding.
Kahan says he’s prepared to meet that need. “I don’t think anyone should have a problem with what LifePoint is doing,” he adds, “as long as it’s done properly.”