Donor Advised Fund (DAF)

Can I Use My Life Insurance to Give to Charity?

As Forbes explains in the article “2 Ways To Combine Charitable Giving And Life Insurance,” one of the core products for protecting wealth is life insurance. As you age, your need for life insurance may lessen, but sometimes it will increase. If you have a life insurance policy that you no longer need, one option might be to use your life insurance to give to charity. You can simply donate your policy to a charity of your choosing.  There are several ways that life insurance policies can be gifted or used for charitable purposes.

Donate your life insurance policy to charity
Use your life insurance policy to make a charitable donation.

Gift Your Existing Policy. You can simply give away an existing policy, if you no longer need the policy for estate liquidity or estate taxes. You could gift the policy outright to your favorite charity or use a Donor Advised Fund (DAF). If you give the policy to a charity outright, you can change ownership of the policy and pretty much be done with it. You might get a charitable income tax deduction for the value of the policy at the time of the gift (it’s measured by the sum of the interpolated terminal reserve plus unearned premiums rather than the death benefit amount).

If the policy has ongoing premiums, those would be the responsibility of the charity. However, you can help them, by continuing to make the premium payments on behalf of the charity by directly paying the insurance company. You could also pay the value of the premiums to the charity and let it pay the insurance company. The premiums would then be tax deductible, since the charity owns the policy.

You could also simplify your life as the donor, where you could convert the policy to a reduced and paid-up policy and donate it with no ongoing premiums needed. This may be easier, because you don’t need to create an additional outflow of cash, after the gift is made to keep the policy in effect for the charity. You just transfer the policy value without any further obligations.

Charities typically like to receive gifts of policies with no ongoing premiums, because it eliminates the task of sending the donor a gift receipt, every time a premium payment is made. It also eliminates the issue of whether the donor or the charity is to pay future premiums.

Gift a New Life Insurance Policy. Another tact is to give a new life insurance policy. This can be a bit more involved, because if the charity’s going to be the owner, they must have an insurable interest in the donor. However, if you have a strong ongoing relationship with the charity, this requirement can be satisfied. You can then pay up the policy completely at the start or make ongoing premium payments over time.

Reference: Forbes (March 6, 2019) “2 Ways To Combine Charitable Giving And Life Insurance”

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