Most people have at least one type of charity that is close to their heart – and typically offering assistance, either through a donation of time or money is something that we all strive for. One way to greatly increase the financial contribution that is made to a charitable organization is to use life insurance as a tool. In doing so, it can have exponential benefits for all who are involved.
Using your life insurance to make charitable donations is a win-win for most applicants. It allows you to leave your family with financial protection that they need, and also give back to charitable organizations in your community.
Perhaps you’re looking for life insurance for yourself or wanting to know if you can buy life insurance on your parents; if so, we can help. There are many options we would love to discuss with you. If health is an issue, we can put you in touch with companies who offer life insurance without underwriting.
How to Make Charitable Contributions Using Life Insurance
There are actually several ways in which life insurance can be used as a financial tool for making charitable contributions – and doing so can have benefits for both the charitable organization and the donor.
One option – and the easiest method to set up – is to simply name the charitable entity as the beneficiary of the policy. The obvious benefit in this case is that the charity will receive the amount of the death benefit proceeds – which is oftentimes an amount far greater than most individuals could donate during life.
When a charity is named in a life insurance policy as the beneficiary, the policy owner pays the premiums. Upon the insured’s passing, the policy’s death benefit is then contributed to the charitable organization as if it were a charitable gift. Because the death benefits are not subject to tax, the organization will be able to receive the full amount.
On top of this benefit to the charity, if you are the owner of the life insurance policy, there are also some tax advantages that you are eligible for. First, you can deduct the amount of the premium payment for the policy as an itemized deduction on your yearly tax return.
In addition, because you are donating the death benefit to the charity, the amount of these proceeds will not be counted in the total value of your estate when calculating it for estate tax purposes. For many people, this can save a great deal in estate tax liability.
To set up this strategy, it will be necessary to assign your rights to the life insurance policy to the charity. This means that you will be required to give up your right to make any type of change to the policy without the consent of the charity first. In addition, if you are no longer able to make the policy’s premium payments, the policy may be cancelled.
Other Charitable Strategies
Rather than assigning your entire death benefit over to a charitable organization, there are other options that can be put in place for using life insurance to donate funds. One of these involves simply adding a charitable giving rider that will pay out a certain additional percentage of the death benefit amount to a named organization.
These riders are a relatively new addition to the many riders that are available for life insurance policies. In most cases, the face amount of the policy must be in the $1 million range, and the rider will pay out in the amount of 1 – 2 percent of the death benefit to the charitable entity.
While these particular riders are still somewhat limited today, they do fill a need in that they allow policy holders to donate to charities using current coverage rather than having to purchase an entirely separate life insurance policy for the benefit of the organization.
Another option that does not involve the donation of a life insurance policy’s death benefit involves making donations of dividends from a cash value policy to a charity. Oftentimes, whole life insurance policies will pay out dividends to their policy holders. These dividends can be redirected and donated instead to the charitable organization. A side benefit to the donor is that he or she is able to take a tax deduction in the year that the dividends are paid.
Steps in the Process
Prior to donating life insurance policy proceeds or dividends to a charitable organization, there are some important factors to consider. First, the entity in which the funds are going to must be qualified to receive them. In this case, it means that the organization must be a 501(c)3 charity and fit the IRS (Internal Revenue Service) definition of being a nonprofit entity.
In addition, there are certain organizations that may not be able or willing to accept donations for one reason or another. With that in mind, it is always a good idea to consult with the charity prior to naming it as a policy beneficiary or a recipient of policy dividends.
It is also important to use the right type of life insurance policy when setting up a charitable giving strategy. Here, it is oftentimes best to use whole life insurance. One reason for this is because permanent policies, unlike term insurance, never expire. Whole life policies also offer cash value and dividend options.
When ready to set up a charitable giving strategy, it is best to compare the quotes from several top life insurers prior to applying for coverage. This way, you will have a better idea of which insurance company can offer you the best premium price for the policy that you need.
There are a majority of policyholders that use their life insurance policy to make donations, but you don’t have to designate the whole policy towards the nonprofit. You can donate half, or a portion of your insurance to the charitable organization and the rest to your family. This is a great way to give your family the life insurance protection that they need, and to give back to your community.
We work with many of the best life insurance companies in the industry and we can help you to compare life insurance quotes. Simply use the form on this page to get the process started. Should you have any questions regarding the quote process or about life insurance in general, please feel free to contact us at 334-380-4188 and we will be happy to help.
Using your life insurance policy to make a charitable donation is simple, but if you have any questions about using your coverage to leave your legacy to a nonprofit, we can answer those questions and help you make the perfect decisions for your insurance protection.
As independent life insurance agents, we can help you find affordable life insurance to meet your needs. We represent dozens of insurance companies across the nation. We can help you compare rates from all of these companies and once and ensure that you’re getting the lowest rates possible.