Charitable giving is good. People can either make charitable donations while they are living or leave a legacy when they eventually pass away. Charitable life insurance offers a great way to leverage tax deductible premium payments today into a meaningful future donation.
If you are a regular donor to an organization, charitable life insurance offers you a method to leave larger gift to their favorite non-profit organization.
Instead of making a monthly contribution to a charity, you can contribute the same amount of money to pay the premium on a life insurance policy to eventually benefit your charity.
The future death benefit of your policy would most likely exceed the amount you could afford to donate during your lifetime. So, the charitable gift of a life insurance policy allows people of all income levels to contribute at a much higher level compared to donating money directly to the charity.
A charitable life insurance gift has a multiplying effect, whereby, a smaller premium creates a much larger benefit for your charity.
3 Charitable Ways to Gift Life Insurance
It is estimated that over 30 billion dollars is donated to charities each year by bequest’s. With a bequest, gifts are made upon the donor’s death, through instructions created in a will, trust, or beneficiary designation.
If you are planning to make a charitable bequest to your favorite organization, you can also use life insurance to provide funds to your charity upon your death.
There are three common ways to assist any charitable organization with the gift of a life insurance policy:
- Designate the Charity as a Beneficiary
- Donate your Life Insurance Policy to a Charity
- Purchase a Charitable Life Insurance Policy
1. Designate the Charity as a Beneficiary
This gift of life insurance can be as simple as updating your beneficiary designation to the charity which will receive the death benefits when you die.
This simple method allows you retain ownership of the policy and have the flexibility to make changes to the beneficiary designation in the future.
You can designate your charity as the primary beneficiary for a percentage or specific amount.
You can also make the charity the secondary beneficiary, so that the charity will receive the balance of your policy only if your primary beneficiary doesn’t survive you.
This is ideal for people who already have a life insurance policy and no longer need the coverage because children are now adults or their spouse has passed away.
Remember, when the charity is listed as the primary beneficiary or the secondary beneficiary but not as the owner, there is no current charitable deduction.
2. Donate your Policy to a Charity
You can also donate your existing life insurance policy directly to the charity. The non-profit organization will assume ownership and will also be the beneficiary the policy.
Since, you are giving up ownership of the policy; you can also claim a federal income-tax deduction for your donation.
The deduction is for either the policy’s tax basis or the cash surrender value, whichever is less, for the year in which the policy is donated.
If the policy is a paid-up policy you will only receive a one time deduction for the year the policy is donated.
If the policy requires future payments, each additional payment is also tax deductible as a charitable gift.
Some states do not allow a charity to purchase a donor’s life insurance policy. Please check with the IRS, or tax adviser for the laws applicable in your state of residence.
3. Purchase a Life Insurance Policy
What if you do not have an existing life insurance policy now?
Younger and healthy older donors can also purchase a new life insurance policy.
You can gift premium payments to buy a life insurance policy on you, with the death benefit payable to your charity upon your demise.
The charity will be the irrevocable owner and sole beneficiary of the life insurance policy.
Each year you will make tax deductible gift of the premium amount directly to the non-profit organization.
Your charity will use these funds to pay the premiums to the insurance company.
The charity will eventually receive the death benefit when you pass away.
Does Charitable Life Insurance Sound Appealing?
Great, Affordable Life USA can help you find a new life insurance policy from a network of 186 top life insurance companies.
We work diligently with our clients to match their charitable planning needs with a customized life insurance plan from highly rate insurance companies like Banner Life, American General, Prudential, and Lincoln National.
In order for this strategy to work, you will first need to qualify for the amount of life insurance you wish to provide for your favorite charity.
The qualification process for life insurance will include both medical and financial underwriting. Your actual price is based on many personal factors like height, weight, medical background, and family history.
People in decent health can easily purchase a new life insurance with exponential benefits eventually going to their charitable organization.
If you are considering a charitable policy, the type of life insurance coverage is also very important. After all, the life insurance coverage needs to be active for this charitable gifting strategy to eventually pay off.
Permanent life insurance policies such as universal life and whole life are normally purchased to ensure coverage is in force for the lifetime of the donor.
To get sample permanent life insurance quotes, use our life insurance calculator called Instant Life Insurance Quotes.
Finally, remember to always double check the legitimacy of the charity before making a charitable donation. An easy online method is provided by Charity Check 101, a non profit organization with detailed information on many 501(c)(3) charitable organizations.
If you are interested in learning more about helping your charity with the charitable gift of life insurance, please do not hesitate to call us at 1-877-249-1358.