Gifting Life Insurance to Charity


Well, one thing about how I write blogs.  Whether they are written well or poorly, whether they capture the reader’s attention or not, I will get on a topic and continue to write on the same topic for a while.  We have been on the topic of various options for giving to charities, and one topic within this arena is gifting life insurance to charity.

The topic of gifting life insurance to charity can sometimes be a taboo subject for some as it brings up horror stories of commission-motivated life insurance agents who want to sell a policy for the commission.  The policy they represent may not be in the best interests of their client.  And to be quite honest, when gifting life insurance to charity, you might be surprised that many short-sighted charitable organizations are not even interested in receiving this gift.  Hard to imagine, but true. Unfortunately, when gifting life insurance to charity, this deferred gift does not address the charity’s immediate concern of having cash….and NOW!   This is understandable but unfortunate. In fact, when gifting life insurance to charity, many fundraisers working on behalf of the charity may not be paid any bonus, commission, etc. from this generous gift.  Even for the W-2 employee, the gifting of life insurance to charity may be…..a yawner.  Again, I do and don’t understand the disdain that many charities have with life insurance as a charitable gift.

But the gifting of life insurance to charity is neither good nor bad.  The gifting of life insurance to charity rests more with what is in the best interests of the donor.  The donor may not have $100,000 in liquid assets to donate to a charity, but can afford modest premium payments which finances a $100,000 death benefit on a life insurance policy where the charity is the beneficiary.  There may be tax strategies involved where an individual may wish to donate a life insurance policy to a charity.  It is unfortunate that instead of looking at the inherent benefits of gifting life insurance to charity, the conversation rotates more around the selfish interests of an agent to sell a policy OR the selfish interest of the charity to “get donated funds RIGHT now.”

Gifting Life Insurance  to Charity

In fact, while there are numerous strategies involved with gifting life insurance to charity, this post will simply focus on the least complicated gifting.  The outright gifting of an existing policy to a charity that you may no longer need.  In taking an existing policy and gifting the life insurance to charity, the donor’s policy may no longer be “needed” for estate purposes and may or may not have a significant cash value to the policy.  This gift may not harm the long term financial or estate intentions of the donor, and can be a great gift to the charity.  This gift may very well be an extremely efficient and affordable way to make the gift to charity.  This gift may also provide a significant tax benefit to the donor when making the gift.

Now keep this in mind….if you are purchasing a policy  in an irrevocable manner and making the charity both the owner and beneficiary you will receive a tax deduction for any cash value of the policy.  In addition, any future contributions donated to the charity for purposes of paying the annual premium will be tax deductible as well.  Even if in the future circumstances changed and you no longer were able or wanted to make premium payments, the charity still benefits in receiving any potential cash value of the policy.

However, many people want control of their policy and are not necessarily interested in making this irrevocable gift.  They still want the ability to change their mind as to the end beneficiary and may just not want to be stripped of the control they have over the policy by making the gift irrevocable.  While the charity may only want an irrevocable gift, it is your money and your control.  Other than losing some initial tax deduction benefits when making an irrevocable gift, you may still qualify for future tax deductions when YOU choose to make the gift.

One primary tax benefit in gifting life insurance to charity is that besides the charity receiving the gift tax free, there will be no complex probate issues to resolve and your estate will not be subject to gift or estate taxes. Gifting life insurance to charity permits an individual to use modest amounts of funds to purchase a policy which, compounded over time, permits the charity to receive a gift that is much more that what the donor paid in premiums.  As a charitably-minded individual, do not be swayed from what you want to gift….by either the life insurance agent OR the 501(c)(3) charitable organization.  I would always think of two things:  1) it is YOUR money, and 2) a charity should never kick a gift horse in the mouth!

As always, the information provided is intended to be educational and informative in nature.  It is not intended, nor should it be interpreted as, any form of tax, legal, financial or investment advice.  You must always consult with your respective professional in all such matters.