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Life Insurance and Charitable Donations

Cupcake Photo David Berkowitz

Want to give to a charity?  Your life insurance policy could offer some great potential in terms of giving power.  Certainly this could be something to explore if you want to maximise the amount that you may give a charity or non-profit organisation.

Giving Power at Its Pinnacle

For those of us who enjoy donating money to reputable organisations, it’s not exactly easy.  After all, there are so many expenses that plague life – to say the least – that those on tight or reasonable budgets may not be able to scrounge up that much money.  And let’s be honest: sometimes selfishness and ignorance comes into play.

As there are certainly many difficulties surrounding giving throughout one’s life, there is an easy way to remove that.  You know where this is going, surely.  There is plenty of room for giving when you die; after all, you won’t need it, right?

All jokes aside, life insurance allows those who wish to donate to do so.  Your life insurance policy – or additional life insurance policies of some type – can be donated on some type of basis to a charity.

How?

Well, this is the tricky part.  Let’s first identify some of the common ways that individuals may make charitable donations through their life insurance policy:

  • Charitable Giving Riders: For policies of over $1 million, a percentage or two of the face value of the policy can be paid to a qualified charity.  In some policies, they come at no additional cost and do not reduce the cash value.
  • Policy Donations: This option allows the charity to receive the whole face value of the policy.
  • Naming Charity as Beneficiary: The simplest option can have the drawback of reducing the donor’s estate by the amount of the death benefit.  Note that there is also the option of naming the charity as a revocable beneficiary, leaving some flexibility in future planning.
  • Gifting Policy Dividends: Without some advantages of the other methods, the dividends can be gifted and then given to the corporation.

As briefly mentioned, these options can become quite complicated.  This is due to the tax implications, donor estate values, and other items that can make it rather confusing.  There is no room to get into it here – if you are considering some of these options, you will absolutely need to talk to an insurance/tax professional who can guide you.

Closing Thoughts

It is clear that life insurance policies offer a great opportunity to benefit charities and similar organisations.  If you have wanted to help out such an organisation, but haven’t really had much leverage to do so, perhaps you could consider some of the many options to do so through a life insurance policy.  Surely you could find a way to give back.

Be aware of what is involved when you look at your options.  There are many items that should be considered when making a charitable donation through a policy; make sure you speak to an expert regarding some of these factors.

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