Charitable Life Insurance

Using Your Policy to Benefit a Nonprofit

Life insurance is a significant asset that many people own, whether in the form of an individual policy or group term insurance through an employer. Sometimes a policy outlasts its original purpose. In such cases, when additional financial coverage is no longer needed for family or loved ones, life insurance can offer a way to provide substantial support for Christian ministries.

You can arrange a future charitable gift with life insurance simply by listing your favorite nonprofit as a beneficiary. (Your insurance company can provide the needed beneficiary form). You will not receive an income tax deduction for this future gift, but you retain complete control of your policy and flexibility to change the beneficiary at any time. This way, a policy’s death benefit typically avoids probate and goes to charity without any estate tax.

If, instead, you are looking for an income tax deduction, then you might consider an outright gift of life insurance that’s no longer needed. This is accomplished by irrevocably transferring ownership of the policy to charity—in this situation, you would relinquish all incidents of ownership and rights in the policy.

For example, John, a widower, owns a $100,000 whole life insurance policy that he purchased when his children were young. He no longer needs this coverage because his children are now adults and financially independent. After consulting with his financial advisor, John decides to donate his policy to a Christian ministry by making the organization its irrevocable owner and beneficiary. The income tax charitable deduction is generally equal to the lesser of the policy’s fair market value or the total of its net premium payments. Since the charitable tax deduction is more than $5,000, John is required to obtain a qualified appraisal of the policy. If John continues to pay premiums on the policy, which the charity now owns, each premium payment is tax deductible as a charitable gift.

Consult your professional advisors before making a gift of life insurance. And be sure the gift does not take away from necessary liquidity for family or those dependent on the insured.

This article is not intended to provide specific legal, tax, or financial advice. You should seek the advice of qualified professionals in planning for the future of your family.