Financial Benefits of Donating Life Insurance

For someone who has established a donor advised fund at the Foundation, this method may align well with estate planning goals because the death benefit passes directly to the fund outside of probate. It may help reduce the taxable value of the estate.

Donating life insurance is a great way to boost and leverage your giving. Here are some of the financial benefits of donating a life insurance contract.

• Make affordable gifts over time in the form of premium payments.
• By using a donor advised fund (DAF), one life insurance contract can benefit multiple nonprofit organizations. A DAF is a flexible charitable giving tool that allows you to give to causes you care about, while we take care of the managing responsibilities.
• Donors can also name their DAF as the beneficiary of the contract and retain ownership during their lifetime.

In this case, actual ownership of the policy is transferred to a nonprofit or in most cases a community foundation like ours, which then becomes both the owner and beneficiary. Donors may be eligible for an income tax deduction equal to the policy’s fair market value. In many cases, the ultimate death benefit is often much larger than the total premiums paid. If the policy still requires premium payments, donors can continue funding those payments, which often result in charitable income tax deductions. This effectively converts future premium dollars into charitable gifts.

Let’s look at how this works.