10 Top Ways to Use Life Insurance in Charitable Giving
Note that each method of giving life insurance described here has advantages and disadvantages. If you yourself are not a charitable giving tax law specialist, you should work with charitable giving experts when offering clients these ideas.
1. Name a charitable recipient as beneficiary of a life insurance policy already owned by the donor.
2. Buy a new life insurance policy to donate to charity.
This can be a convenient way to make a substantial gift in an affordable and tax-efficient manner.
3. Give a paid-up life insurance policy already owned by the donor and change the owner and beneficiary to a charity.
4. Give an existing life insurance policy on which the donor is still paying premiums to a charity.
5. Buy a life insurance policy benefiting the donor’s heirs to replace money or property donated to charity. This method merits serious consideration by those who want to make significant charitable gifts without necessarily reducing what their heirs will receive. The tax savings realized as a result of a gift of cash or other property may be used to help offset the cost of insurance purchased to replace the assets donated.
6. If it is more advantageous, purchase a life insurance policy on the life of another person, such as a spouse, partner or child. This is an excellent way to give life insurance if the donor is uninsurable. Premiums are deductible when a qualified charity is named as the owner and beneficiary.
7. Take advantage of an opportunity to name something important, such as a new classroom or a new building, using cash and a life insurance policy gift.
Assume that to, make the naming, there needs to be one-third of the gift provided up front and the rest secured immediately or paid in a short period of time.
The one-third up front is done with cash.
Then use a life insurance policy to secure the balance. Use a policy where the premium is paid with fewer than 10 annual payments. The cash is, of course, tax-deductible, and so are the annual payments.
The tax savings reduces the actual cost of the gift.
But in addition, the life insurance payments can mean that the balance of the gift can be done with approximately half of the cash expenditure.
8. Help fund an endowment, or gift that generates an ongoing stream of income for a nonprofit organization, with a combination of cash, a matching gift and life insurance.
Here’s an example of a common endowment giving scenario.
The donor is 60 and wants to create a scholarship endowment. The endowment will be complete once it has $25,000 in assets.
