Charitable Gift Life Insurance

Charitable gift life insurance is a method of contributing to charity by taking out life insurance on yourself with the charity as a beneficiary. Using charitable gift life insurance may allow donors to amplify their giving power. Rather than giving large cash gifts as part of a will, some donors find it easier to simply pay the life insurance premiums.

Using charitable gift life insurance means the donor does not get a tax deduction for the premiums paid. However, the amount of the death benefit paid to the charity will be deductible for estate tax purposes. Charitable gift life insurance may also be less likely to cause probate disputes, since the intention to make the gift is clearly laid out by the insurance contract.

Naming the charity of your choice as the beneficiary of your life insurance policy is the simplest way to provide a charity with the death benefit proceeds from a policy, although it does not offer the income tax advantages that come with gifting a policy. However, it still reduces the donor's estate by the amount of the death benefit. Donors who are unsure of exactly how they want to apportion their assets after death can list a charity as a revocable beneficiary if they so choose. This gives them flexibility in future planning in case their financial situation changes. 

Despite naming a charity as the beneficiary of a life insurance policy, the policyholder will still retain a high degree of flexibility. For instance, a policyholder can borrow against the policy and take cash withdrawals. Of course, doing this will reduce the value of the future gift. If a policyholder changes their mind, they can name another beneficiary or cash out. Policyholders also can split the beneficiaries among two or more organizations—say your college and your local food bank.

Naming a charity as a beneficiary also ensures the privacy of the transaction, which can be important for donors who wish to keep their gifting intentions secret from their families or other heirs. Transfer of assets from an insurance contract is also absolutely incontestable, thus rendering anyone contesting the estate settlement powerless to stop it. Furthermore, the donor remains in a position to change the beneficiary prior to his or her death. If the donor chooses to stop paying the premiums, the charitable organization can choose to continue the process or can allow the policy to lapse.