A gift of life insurance is a legacy gift that most don’t think about. However, it is not only powerful and simple to arrange, it allows people with relatively small cash savings to make a large cash gift to charity upon death.
There are three ways to donate through a life insurance policy:
- Donate an existing life insurance policy – naming the charity as the owner and beneficiary;
- Purchase a new life insurance policy – designating the charity as the owner and beneficiary; or
- Donate a new or existing life insurance policy through your Will – naming the charity as the beneficiary, but not the owner. This can be a personal or group life insurance policy.
Each option offers different tax advantages which may make sense at different stages of life.
Benefits (Options 1 & 2):
- Can be structured so that you receive tax benefits now and throughout your lifetime.
- Immediate charitable income tax receipt for the cash value of the policy that you can use to off-set your current income.
- Annual charitable income tax receipt for any premiums paid to keep the policy in force after the transfer.
- Make a significant future gift with little or no cash outlay today.
- If the policy is fully paid at the time of transfer, there are no more premiums to be paid, yet there will be a significant future gift.
- Insurance policy proceeds paid to the charity upon death are not included in your estate and are not subject to probate fees.
Considerations (Options 1 & 2):
- Ownership of the policy must be transferred irrevocably in order to qualify for an immediate charitable income tax receipt.
- The policy cannot be returned to you if your financial circumstances change in the future.
Benefits (Option 3):
- Make a significant future gift while retaining full ownership (and control) of the policy.
- Modest premium payments today translate into a significant future gift.
- Upon death, the insurance proceeds are paid directly to the charity. This occurs outside of your estate and therefore is not subject to probate fees.
- Charitable income tax receipt will be issued to your estate for the policy proceeds, which can be used to offset taxes payable upon death. Note: you will not receive a charitable income tax receipt while alive.