The Giving Season: Charitable Gifts and Life Insurance

We have officially entered the season of giving!  As winter digs in and we prepare for the myriad holidays before us, Americans reflect on feelings of gratitude and generosity.  We can hear the bells of Salvation Army volunteers standing beside their red, hanging buckets.  We receive mail from our charities asking for support to fund their upcoming year.  In this spirit, the shorter days of winter are long on charitable giving.  People who have the time and means to give back to causes that inspire them may not realize that the gift of life insurance can be a game-changer for charitable contributions.  There are several ways in which you can use life insurance to support your donations.  Some even offer tax-friendly outcomes on estate taxes.  Let’s learn more.

3 ways you can use life insurance policies to support charitable organizations

You may want to consider purchasing a life insurance policy or altering an existing policy to include your preferred charity or non-profit organization.  Here are three ways to do just that.

Name a charity as one of your beneficiaries

The simplest way to include a charitable organization in your life insurance policy is to add them to your list of beneficiaries.  This means that alongside your heirs and any other people you have named to receive the death benefit portion of your policy, a charity can also receive cash from this benefit.  Additionally, your taxable estate can be reduced by the amount of death benefit you donate to the charitable organization.

Beneficiaries on life insurance policies are private.  The outside world and even the other beneficiaries will not know whom you’ve named to receive the benefit in the event of your death.  This means that the donation will not be able to be contested and you can be certain that the charity you named will receive your support posthumously. 

Use a charitable giving rider

Another way to show love to your preferred charity is to add a Charitable Giving Rider to your policy.  On high-value policies, this rider can usually be added at no additional cost to you. The rider itself imparts a portion of the policy’s face value to the charity.  In some cases, it imparts an additional benefit amount. 

There are some limitations to this approach.  The charity itself must meet the criteria specified by the insurance company.  Additionally, this method may require a larger amount of protection in order to qualify.  Overall, however, the charitable giving rider can provide a substantial financial gift without the need to set up a separate gift trust and at little to no cost.  

Gifting an entire life insurance policy

If you are someone who is heavily invested in a particular charitable organization and intends to leave behind a large estate to your heirs, you should consider donating an entire life insurance policy to your preferred cause.  This approach is more involved than simply naming the charity as a beneficiary or attaching a charitable giving rider to a policy, however, the tax advantages for your estate are greater and the financial windfall for the charity is more significant.

When you gift a life insurance policy, the charity becomes both the owner and sole beneficiary of the policy.  With a permanent policy, the charity can either choose to continue the policy or surrender it for the cash value.  If they continue the policy, you can pay the premium payments directly to the charity and write them off of your taxes.  

Gifting a policy can help take an older, less helpful policy that you may have purchased at a different time in your life and turn it into a meaningful contribution to a charity while also reducing the taxable burden to your estate. 

Let us know how we can help you give the gift of life insurance this season

Gifting life insurance can have implications for your overall estate plan.  You should consult with your estate planner and an insurance specialist to decide the best path for your contributions. We are happy to help you get the ball rolling and answer any questions you may have regarding your policies and how they might make a difference to your preferred charity or cause.  Let us know how we can help you this season and from all of us, we wish you and your loved ones a happy, festive, and giving holiday!