You know that life insurance can protect your loved ones, but did you know it can also be donated to a charity or organization of your choice? Read more about donating life insurance.
Taking out a life insurance policy is an excellent way of ensuring that family or loved ones do not fall into financial despair after your passing. However, what happens if they don’t need it? What if in the time since purchasing the policy, your heirs have become financially sound? In some instances, a big payout might even lead to unnecessary tension between surviving family. These are just a few of the reasons why you might consider donating life insurance to charity.
Donating your life insurance to a favored charity is a great way to give back to your community. Rather than a life insurance payout being sent to an individual, the charity organization of your choice will receive the funds.
There are two ways to donate life insurance policy to a charity. The first is to name the charity as the primary beneficiary of the policy, while still retaining ownership. This allows you access to the policy while you’re still alive. This also gives you the opportunity to change your mind. For example, if sudden financial concerns befall your family, it makes sense to be able to redirect that money—formerly directed toward the charity—to the heirs in need.
The drawback to this option is that owners of the policy are not able to take advantage of the income-tax deduction they would typically earn for such a charitable donation.
The second option involves the owners, while still alive, transferring the ownership of the life insurance policy to the charity. The immediate and obvious benefit to this option is the ability to see the direct impact the donation makes, while you’re still alive. Another benefit is that it relinquishes the hassle of maintaining the policy or paying the premiums. In addition, the charity can choose to liquidate the policy if they do not wish to pay the premiums.
By donating a life insurance to a charity while still alive (i.e. transferring ownership), you can also claim tax deductions with some charitable donations. However, some charities are uncomfortable with accepting ownership because they do not want to deal with the financial responsibilities of keeping it active.
Before donating a life insurance policy to charity, you should know the value of the policy, and, therefore, have it appraised. The price determined by appraisal will reflect how much one can claim on a tax deduction, which, in most cases, will be the adjusted cost basis (total of premiums an individual paid before donating it to charity). The adjusted cost basis is often less than the fair market value.
Donating a life insurance policy is a great way to give back to the community and is a unique alternative to having an individual heir. When making any changes to your life insurance policy, it is important to consult with a licensed agent who can help you make the best decisions for your needs. If you’re currently looking for a life insurance policy, we encourage you to use our instant quote engine to get a free, fast and accurate quote.