Life insurance is the most widely held asset in the United States with trillions of dollars of policies in force. And for good reason: It provides protection against the economic loss suffered in the event of death or disability. It is used as a supplemental source of retirement income as well as for the payment of state and federal death costs and other expenses. It enables businesses large and small to continue in the event of the death of a key employee.
In addition, life insurance can make an excellent charitable gift and can be given at very low cost:
- You may use a life insurance policy to make a substantial gift on an installment basis by making a series of modest payments during your lifetime.
- Your gift of a life insurance policy is certain, and the proceeds are paid promptly without going through the time-consuming process of probate.
- Depending on the arrangement of your gift of a policy, there are a number of favorable tax consequences.
You may wish to name our organization as the beneficiary of a policy but retain ownership. Although the face value of the policy will be included in your gross estate at your death, your estate will be entitled to an offsetting charitable estate-tax deduction.
If you are certain your policy will not be needed for your retirement or estate liquidity, you may wish to assign the policy with all of its incidents of ownership to our organization. By doing so, you will receive an immediate income-tax deduction for the fair-market value of the policy (or the cost of the policy, if less).
The fair-market value will depend on the type of policy and the length of time it has been in force.
If future premium payments remain to be made on the policy, you will receive a charitable income-tax deduction for each premium payment. And by assigning an insurance policy to our organization, you will also remove the policy proceeds from your gross estate and generate potential estate-tax savings.
Planning pointer: Instead of paying the premiums in cash directly to the insurance company, consider transferring the ownership of long-term appreciated property of an equivalent value to our organization. In turn, we will make the premium payments.
- Benefit: You get the same charitable deduction as for a gift of cash, plus you escape any capital-gain tax on the appreciation element.
- Caution: State law regarding a charity’s right to own a policy on a donor’s life may affect the tax benefits of a gift of life insurance. Please check with your legal advisor.