Supporting a Charity with Life Insurance

You can make a substantial gift to a good cause by donating either all or part of your life insurance policy to your favorite charity.

Why Use a Policy for Charity?

When you think about life insurance, you probably don’t think about it as a way to give money to charity. What most people don’t know is that life insurance policies can be used to generously donate money to charitable organizations.

For some people, donating part or all of a policy is a way of making use of a policy they no longer need after a change in their financial situation. Certain policies may offer riders that allow for charitable giving at no cost to the policyholder. And some people just see it as one way to support a good cause.

Methods to Support a Charity

Below is a list and brief description of some of your options for supporting a charity with your life insurance policy.

Charitable Riders

If your policy is over $1 million, you may have the option to add on a charitable giving rider, which typically allows you donate one to two percent of your policy’s face value to your charity of choice. Although they are typically only available on larger, more expensive policies, they are typically free to add on and do not devalue your policy in any way.

You must choose a 501(c)3 that qualifies with the IRS as a non-profit, which may limit the list of organizations you are eligible to donate to. Policies often come with limits on the amount of money donated under a rider, and some organizations may not accept a donation from a term life insurance policy, so be sure to check with your chosen charity before adding on a rider.

Donating Your Policy

If you have a whole life insurance policy, donating the entire policy to charity is an option for people who want to give a much larger gift to their cause of choice. Because whole life insurance policies can be used for estate-planning purposes, there can be some complicated yet significant tax benefits for a policyholder who chooses to donate a policy.

When you donate a policy, rather than simply adding a rider, there is no limit to the size of the policy that may be donated. The charity would receive the entire face value of the policy. In this case, premium payments may be tax-deductible.

Naming a Charity as a Beneficiary

Generally, naming a charity as the beneficiary of your life insurance policy is the simplest way to donate to your life insurance policy. For term life insurance policyholders, this is the easiest way to give a gift. The downside to this method is that, if you outlive your term policy, the charity does not receive any donation.

Donating Dividends

Whole life insurance policies typically earn dividends while you are still alive, and you have the choice to receive payments in cash and donate them to your charity of choice. This option won’t provide as large of a benefit to the charity, but it is simple to do.