The Role of Life Insurance in Charitable Giving

Utilizing life insurance for charitable giving is a powerful way to ensure your values endure and continue to make a lasting impact. Understanding the different ways life insurance policies can be used for charitable donations can be beneficial.

What Types of Life Insurance Policies Do You Need to Donate to Charity?

Both term and permanent life insurance policies can be used for charitable giving; however, the exact method and benefits may vary.

How Life Insurance Can Be Used for Charitable Giving

The following are the three different ways life insurance can be used to leave a charitable legacy:

1. Charitable giving riders—Some life insurance policies offer charitable giving riders, which usually pay a percentage of the policy’s face value to a qualified charity at no additional cost. Riders are optional add-ons or enhancements to a life insurance policy that offer additional benefits or customization options. These riders typically do not reduce the cash value or primary death benefit paid to other beneficiaries. The advantage of using a rider is that it can eliminate the need to create, pay for and administer separate gift trusts until the death of the insured. However, charitable giving riders are not universally available and are typically designed for modest donations rather than large gifts
2. Policy donations—Policyholders can also choose to donate the entire face value amount of the policy upon the death of the insured. This option is usually chosen to give a more substantial amount than a rider. Alternatively, some individuals donate an existing life insurance policy to a charity during their lifetime by transferring ownership of the policy to the charity. This may provide a current charitable income tax deduction based on the policy’s fair market value. Once ownership is transferred, the charity becomes responsible for any future premium payments unless the donor continues to cover them.
3. Named beneficiary—Policyholders may also name a charity as one of the beneficiaries of the life insurance policy. This is considered the simplest way to donate a death benefit to charity. However, naming a charity as a beneficiary does not provide a current income tax deduction but may reduce the size of your taxable estate, potentially providing estate tax benefits.

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For life insurance guidance near you, contact Bovard Insurance Group.

This blog is intended for informational and educational use only. It is not exhaustive and should not be construed as legal advice. Please contact your insurance professional for further information.