Is it possible to donate a life insurance policy to charity?

By Insurance.com Posted : 01/01/2011


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Yes, donating a life insurance policy to a charitable cause is one way to benefit others with a large gift and, in some cases, yourself -- with a tax deduction. You can donate a new policy or put an existing policy that's no longer needed to good use. First make sure the charity is a non-profit organization with 501(c) (3) status, and ask if the organization will accept a life insurance donation.

Permanent life insurance policies, such as whole life or universal life, are the most appropriate choices for charitable giving. A term life policy may expire before the insured dies, so it doesn't work well as a dependable, long-term gift.

To benefit from a tax deduction, you can give an existing or new life insurance policy outright by naming the charity as both the owner and the beneficiary of the policy. The cash value and any premiums you pay after making the gift are tax deductible. The donation also decreases the amount of your taxable estate.

Another option is to maintain ownership of the policy and name the charity as a beneficiary. This doesn't provide a tax deduction, but gives you flexibility. You can name a different beneficiary later if you change your mind.

Yet another way to give to charity through life insurance is to choose a charitable-giving rider. These are generally available through some life insurance companies on permanent life policies with a large face amount, typically $1 million or more. The rider allocates an additional 1 percent to 2 percent of the death benefit to the named charity. The rider doesn't increase the premium, but you have to choose the rider at the time you purchase the policy.

Talk to a tax adviser and estate planner to learn the best way for you to proceed, and thoroughly research the charity to make sure it's where you want your investment to go. Outright gifts of life insurance policies are irrevocable. In other words, once you give it, you can't take it back.

For more, see "A charitable donation--your life insurance policy."

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