As a board member and fundraiser for a local charity, it is surprising how many people think you can only donate to charity while they are still living. However, you can also gift donations to purchase a life insurance policy on you, with the death benefits payable to the charity upon your death.
Charitable giving with life insurance has a leveraging or multiplying effect, whereby, a smaller tax deductible premium creates a much larger benefit for their church, school, or charity.
The charitable giving with life insurance strategy can be used by both middle income as well as wealthy individuals.
Families wishing to fund larger policies for charity, can also purchase additional coverage to replenish the premiums gifted to the charity. So, if you need to make up any shortfall to your family caused by your donation, two separate death policies can be issued simultaneously and divided between children and charity.
Charitable Giving with Life Insurance:
• Have your charity of choice take out an insurance policy on you.
• The charity will be the owner and sole beneficiary of the life insurance policy.
• Every year the donor (you) will make a gift of the premium amount directly to the charity.
• The donor (you) will also receive an income tax deduction for the life insurance premium paid to the charity.
• The charity uses the funds to pay the premium to the life insurance company.
• The charity receives the insurance proceeds when you die.
• Be sure to check the legitimacy of charity, before you give up ownership of a policy, since it is an irrevocable transfer.
How to Qualify for Coverage?
In order for this strategy to work, you will also need to qualify for an adequate amount of life insurances for your family (if needed) and the anticipated amount for the charity.
The qualification process for life insurance will include both medical and financial underwriting. If you are in decent health and can pass an insurance physical, it make great sense to purchase new life insurance for the purpose of donating it to charity.
The type of life insurance you chose is also an important in order for this strategy to pay off.
Term life is a lower costing life insurance, but the insurance may end before you die. So, if you (donor) live past the term, the charity you designate as a beneficiary would not receive any death benefit
Some better types of polices for charitable giving are guaranteed universal life, or whole life, which are all permanent policies. These policies are more expensive, but are usually better for this type of giving.
Finally, before you make any charitable donation, always remember to double check the validity of the charity.
An easy way to exercise due diligence is by using Charity Navigator, a non profit organization with a wealth of information on most charities.
If charitable giving with life insurance sounds appealing to you, please do not hesitate to call us at 1-877-249-1358.