Donating a Life Insurance Policy to Charity
In many cases people would contribute more to charity if they could afford it. One possible alternative is donating a life insurance policy. If the donation is handled correctly, the policy owner can also gain some tax benefits from the donation.
While there are certainly good reasons for keeping a life insurance policy in place (such as providing liquidity to a taxable estate or to meet the financial needs of surviving family members) sometimes people have the financial freedom and/or charitable intent to be able to donate the policy. Individuals who might be receptive to this type of charitable gift are usually those who have large amounts of life insurance and most of their financial obligations have been met.
Charitable organizations often benefit from the donation of life insurance more than cash donations because usually it is a greater amount of money than a simple cash donation. While the charity may have to wait years for a payoff from the gift, this is usually not a problem because charities include such gifts for their endowment or long-term building funds. The advantage to the donor is that they can make a generous gift with little or no up-front cash.
If correctly handled, a life insurance policy donation can net the donor a charitable deduction equal to the value of the policy. A deduction is also available for cash contributed in future years to pay premiums that are needed to keep the life insurance policy going. However, if handled incorrectly, the donation deduction can be lost. Be sure and consult a tax accountant when thinking about the donation of life insurance policy.
In many cases people would contribute more to charity if they could afford it. One possible alternative is donating a life insurance policy. If the donation is handled correctly, the policy owner can also gain some tax benefits from the donation.
While there are certainly good reasons for keeping a life insurance policy in place (such as providing liquidity to a taxable estate or to meet the financial needs of surviving family members) sometimes people have the financial freedom and/or charitable intent to be able to donate the policy. Individuals who might be receptive to this type of charitable gift are usually those who have large amounts of life insurance and most of their financial obligations have been met.
Charitable organizations often benefit from the donation of life insurance more than cash donations because usually it is a greater amount of money than a simple cash donation. While the charity may have to wait years for a payoff from the gift, this is usually not a problem because charities include such gifts for their endowment or long-term building funds. The advantage to the donor is that they can make a generous gift with little or no up-front cash.
If correctly handled, a life insurance policy donation can net the donor a charitable deduction equal to the value of the policy. A deduction is also available for cash contributed in future years to pay premiums that are needed to keep the life insurance policy going. However, if handled incorrectly, the donation deduction can be lost. Be sure and consult a tax accountant when thinking about the donation of life insurance policy.