Using Your Policy to Make Charity Donations

Whether you want to do a little good with the money you've accumulated during a lifetime of hard work, or you simply want to rid your family of a sizeable tax burden, a gift to charity might be the thing for you and your estate.


This page:

Explains the tax advantages of donating your death benefit

Lists efficient ways to use your policy for charitable donations.

Recommends the type of policy to purchase to maximize your charitable gift

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Naming a charity as a beneficiary

You can make a substantial contribution to any charity by naming the organization as a beneficiary.

Since the death benefit will most likely exceed any amount you can afford to donate during your lifetime, naming a charity as a beneficiary is the most effective and affordable way to make a generous charitable donation. You simply pay your monthly premiums and, upon your death, the full face value amount of your policy is contributed to that organization as a charitable gift.

Tax advantages

There are tax benefits when you make charitable donations. Since the death benefits paid to charities are not subject to any tax, you can rest assured that all the proceeds of your policy will be paid in full to your chosen organization.

As an added incentive you can deduct your premium payments from your annual taxes as an itemized deduction.

To take advantage of this feature, you must actually sign over the policy's rights and deliver the document to the organization. Signing over the rights to a life insurance policy may sound risky, but its not. You are merely giving up the option to change the policy details without consulting the organization first.

Don't worry: if some financial hardship befalls you and you cannot make the payments, you are not going to be driven into debt. The policy will merely be canceled.

Sidebar
To further explore the possible tax advantages, and other benefits of naming a charity as a beneficiary of your policy, contact an InsureMe representative.

The technical details

In signing over your life insurance policy, the policy proceeds are no longer counted as part of your estate. If you keep the policy in your name with the charity as your beneficiary, your estate will include the death benefit as part of its worth, even though the proceeds are going elsewhere. As a result, your estate may be subjected to higher taxes, and your family will be forced to pay the difference, leaving them, perhaps, with much less than you intended.

By actually giving the life insurance policy to a charity, you help out a good cause and your family is spared from paying extra taxes.

If this option sounds appealing, but you don't want to donate your existing policy, you can also purchase a new life insurance policy. Remember to allocate the rights, the proceeds and the actual policy to your chosen charity. You will profit from the same tax and estate advantages as if you signed over your existing life insurance policy.

Alternatives

Other methods of charitable giving using your life insurance policy are available.

Bequeathing an entire life insurance policy is an incredibly generous gesture, but not one that many of us can afford. If you want to use your life insurance policy as a means to donating funds to a charity, consider these other options.

Allocating the dividends paid by your policy to a charity is one way to help out your cause. You can do this anytime while your life insurance policy is in effect by contacting your insurance company or you can make the designation on your policy application. This arrangement allows you to take a tax deduction each year as the dividends are paid out.

If you prefer to make a larger charitable donation than your policy's dividends may yield, consider naming the charity as one of your beneficiaries. A portion of your death benefit can be given to a charity, while you retain a substantial amount to distribute to your family or other beneficiaries. This option is particularly enticing if you want to give the proceeds of your death benefit to a charity as well as your family, but cannot afford to pay the premiums on a second policy. Although this arrangement features no annual tax benefits, it allows you to simultaneously subsidize a charity and give a gift to your heirs. Furthermore, the amount of your charitable donation is deductible from your gross estate, which is a valuable savings in the settlement of your estate.

Our recommendation

With any of these alternatives, the best life insurance policy to have is a whole life insurance policy.

A whole life insurance policy runs no risk of expiring or being non-renewable. Maintaining a whole life insurance policy is the only sure fire way to guarantee your charity will receive your gift in full.

Similarly, the donation of your dividends necessitates a cash value life insurance policy. Since a term life insurance policy does not pay out dividends, purchasing a cash-value policy is the only way to implement this method.

Although you can buy a term life insurance policy with a charity as the beneficiary, it is not too wise. If the policy runs out, if you become uninsurable, or if the premiums eventually get too high to pay, you may have invested a lot of money without ever achieving your goal of making a large charitable donation. All in all, if you plan on using your life insurance policy to making a charitable gift, we advise purchasing a whole life insurance policy.

Sidebar
Again, if you'd like more information about the possible tax advantages, and other benefits of naming a charity as a beneficiary of your policy, contact an InsureMe representative.