Life insurance is an investment and risk management tool that many people use as part of their overall financial strategy. Typically, it is used to provide financial security for family members in the event of a death. Life insurance death benefit coverage for a family should take into consideration income replacement and paying off debts, funding children’s education, final expenses such as funeral or estate costs and perhaps leaving an inheritance. We ask a lot from that insurance premium we pay.
As part of a planned giving tool, life insurance can allow people to provide financial support for the charities or institutions they are passionate about. This is especially true for individuals where the life insurance policy has outgrown the initial need or when someone desires to pass along a significant charitable gift. If you wish to support the Church with your policy, the easiest way to achieve this long-term goal is to name the Church as a beneficiary on a new or existing life insurance policy.
The policy owner can designate the Church as a sole or partial beneficiary of a life insurance or annuity policy. Updating and reviewing your beneficiaries is always a good habit. These changes only become permanent after death. A simple beneficiary change can provide the most flexibility when circumstances and needs change. While you won’t get a tax deduction while you are alive today, you do keep complete control of the policy and know your future gifts will be provided in your name.
Gifts of life insurance death benefits to charity have advantages for both the donor and the charity. Many donors cannot make a contribution of thousands of dollars at one time. For them, a gift of life insurance death benefits to charity will be a one-time gift that is larger than the total premiums paid. These large gifts are made affordable because life insurance is paid over a longer period of time and life insurance can often pay out more in benefits than what is paid into it.
For others, donating a permanent life insurance policy that requires no further premiums can provide a significant future gift and may provide some tax advantages. A gift of an existing life insurance policy is considered a gift of an ordinary income asset, and the tax deduction depends upon the value of the policy that is being gifted. When considering this option, it’s best to consult with a tax advisor (and/or financial planner) prior to signing any paperwork to ensure it’s the best choice for you.
Advantages From the Donor’s Point of View
- The cost of setting up a gift of life insurance is less than setting up a trust, and without the legal expense and inconvenience of making a Will or codicil.
- Since the gift doesn’t pass through probate, the privacy of the donor is assured.
- Because of the contractual nature of an insurance policy, the gift doesn’t run the risk of being lost due to the Will being contested or invalidated. This also lessens the chance for delays between the time the donor dies and when the charity receives the proceeds.
Advantages From a Charity’s Point of View
- As opposed to other assets that are exposed to the risk of falling markets, gifts of life insurance guarantee a minimum benefit as long as premiums are paid.
- The policy benefits can be processed quickly upon proof of death without the lengthy delays of probate or time to settle an estate.
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