Life insurance can play a central role in a charitable giving program. For example, a gift of a paid-up policy, naming the charity as the owner and beneficiary, provides the donor with a charitable deduction equal to the replacement value of the policy (not to exceed the donor's cost basis). A donation of a new or existing policy naming a charity as owner and beneficiary provides a deduction for any accumulated cash value, or cost basis if less, plus the annual premium payments the donor makes to keep the policy in force.
There are several notable advantages to using life insurance in a charitable giving program:
- Guaranteed Death Benefit. The death benefit is guaranteed as long as premiums are paid. The charity can receive an amount that is fixed in value, and not subject to the potential downside risks of securities.
- Leveraged Gift. Life insurance is an amplified gift that can be purchased on the installment plan. A relatively small annual deductible cost (premium) can produce a large benefit. A large gift can be made without impairing or diluting control of a family business or other investments. Assets earmarked for the donor-insured's family can thus be kept intact.
- Self-Completing Gift. Life insurance is a self-completing gift. The cash value may grow from year-to-year as the donor lives. If the donor becomes disabled, the policy can remain in force through optional waiver of premium riders. Even if death occurs after only one premium payment, the charity is assured of receiving its full gift.
- A Dependable Hassle-Free Gift. The death proceeds are promptly received by the charity free of income and estate taxes, probate and administrative costs and delays, brokerage fees or other transfer costs.
- Protected from heirs and creditors. The contractual nature of a life insurance policy protects large gifts to charities from attack by disgruntled heirs.
- Avoids unwanted publicity. A substantial gift can be made with no attending publicity, if desired, since life insurance is not part of the deceased's probate estate.
