Charitable Gifting Through Life Insurance

Many people don’t realize that using life insurance can make a powerful impact in the planning needs of your favorite charities. The “leverage” that can be used to make gifts allows the amount of the policy’s death benefit to usually far exceed the premiums that were paid into the policy, while still keeping things very flexible. There are many simple ways to use life insurance in charitable gifting:

  1. You can gift a policy’s dividends to a charity, such as a dividend-paying whole life policy
  2. Change your current beneficiary to a charity
  3. Gift a policy that is no longer needed to a charity
  4. A common plan is to buy a new policy with the charity being a full, or partial beneficiary, and making gifts to pay the premiums.
  5. Buy a large life insurance policy to back a future donation, because of the lower costs of the premiums vs. the amount of the death benefit.
  6. Gift a highly appreciated asset to a charity for tax benefits, and purchase a life insurance to replace its value for your heirs.

An example:

Jane is 70, and has a $200,000 C.D. at the bank. She doesn’t need the money, but wants to create a meaningful endowment to her favorite charity. However, she also wants her children to inherit the $200k at her death. Jane purchases a cash value life insurance policy with a

$475,000 death benefit, and names her charity as a beneficiary for a portion of the policy proceeds ($275k), and her children ($200k). Incidentally, if Jane needs the money or changes her mind, she still has access to her cash values in the policy. Also, the policy can be further designed to include a chronic illness benefit (similar to long term care) or critical illness protection (cancer, heart, stroke, Alzheimer’s, etc.)

The above example is just one of many different ways to plan for charitable gifting using life insurance. There is also potential income, estate, gift, and capital gains benefits that can be provided. Life insurance can be a tremendous tool for many charitable gifting programs, and makes a wonderful, powerful impact. When designing a life insurance policy, make sure to use a knowledgeable professional, and consult with your trusted tax advisor for tax benefits.

Pat Moran is an experienced financial professional, and recognized as a leading financial educator for the American Financial Literacy Institute. Pat specializes in many aspects of financial education, and conservative solutions for helping people to invest and protect their money. He can be reached at (602) 571-1035