Term Life Insurance Articles
How To Donate Your Term Life Insurance Policy To Charity
2009-10-22
If you no longer have a financial need for your term life insurance policy, or you've outlived your beneficiary, consider making a very generous - and tax deductible - gift to your favorite registered charity. You can do this by making the nonprofit either the owner and beneficiary of your policy, or the beneficiary alone. In either case, you would continue paying the premium as before, but the payment would become a tax deduction. And chances are that the amount donated to your charity through redemption of your policy will be a much greater lump sum than you would have ever been able to donate otherwise.
If the charity is both owner and beneficiary of the policy, you will also be able to deduct - during the tax year in which the gift is made - an amount that is the lesser of either the fair market value of the policy or your cost basis. Alternatively, if you decide to keep the policy and make the charity the beneficiary, the charitable tax credit upon your death will offset your estate tax. A third option is to let your estate inherit the full face value of your life insurance policy and then bequeath an equal sum to your charity. While you will have forfeited the tax deduction on your premiums over the years, your estate will be able to claim a significantly higher charitable tax credit.
Some even buy a life insurance policy for the express purpose of making a charitable donation. However, give this plan a careful thought because this tends to be a rather long-term financial commitment (or at least you hope so). On the other hand, you also get built-in protection against your changing financial condition. For example, if you are no longer able to pay your term life insurance premiums (which might escalate significantly in your later years) your charity might have the option of assuming responsibility for the premiums on a temporary or permanent basis. If there's a drawback as far as your charity is concerned, it's potentially having to wait a long time before receiving a payoff on your generosity. The charity might prefer a more modest, but steady, donation over the years rather than a large lump sum possibly several decades in the future.
First discuss your plans with your financial advisor or tax consultant and find the strategy that works best for your situation. If you do decide to proceed, start by contacting your charity for the paperwork needed to change beneficiaries on your term life insurance policy and for further guidance.
Free Insurance Quotes
If you no longer have a financial need for your term life insurance policy, or you've outlived your beneficiary, consider making a very generous - and tax deductible - gift to your favorite registered charity. You can do this by making the nonprofit either the owner and beneficiary of your policy, or the beneficiary alone. In either case, you would continue paying the premium as before, but the payment would become a tax deduction. And chances are that the amount donated to your charity through redemption of your policy will be a much greater lump sum than you would have ever been able to donate otherwise.
If the charity is both owner and beneficiary of the policy, you will also be able to deduct - during the tax year in which the gift is made - an amount that is the lesser of either the fair market value of the policy or your cost basis. Alternatively, if you decide to keep the policy and make the charity the beneficiary, the charitable tax credit upon your death will offset your estate tax. A third option is to let your estate inherit the full face value of your life insurance policy and then bequeath an equal sum to your charity. While you will have forfeited the tax deduction on your premiums over the years, your estate will be able to claim a significantly higher charitable tax credit.
Some even buy a life insurance policy for the express purpose of making a charitable donation. However, give this plan a careful thought because this tends to be a rather long-term financial commitment (or at least you hope so). On the other hand, you also get built-in protection against your changing financial condition. For example, if you are no longer able to pay your term life insurance premiums (which might escalate significantly in your later years) your charity might have the option of assuming responsibility for the premiums on a temporary or permanent basis. If there's a drawback as far as your charity is concerned, it's potentially having to wait a long time before receiving a payoff on your generosity. The charity might prefer a more modest, but steady, donation over the years rather than a large lump sum possibly several decades in the future.
First discuss your plans with your financial advisor or tax consultant and find the strategy that works best for your situation. If you do decide to proceed, start by contacting your charity for the paperwork needed to change beneficiaries on your term life insurance policy and for further guidance.
