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Many people don’t realize that using life insurance can make a powerful impact in the planning needs of your loved ones, while still leaving money to your favorite charities. You can create a substantial tax-free gift of the policy’s death benefit, which usually far exceeds what you paid into the policy in different ways. Best of all, you still have access to your money, can get income, or keep things extremely flexible. Examples for a charitable gift include:

  • You can gift a policy’s dividends to a charity, such as a dividend-paying whole life policy
  • Change your current beneficiary to a charity
  • Gift a policy that is no longer needed to a charity
  • A common plan is to buy a new policy with the charity being a full, or partial beneficiary, and making gifts to pay the premiums.
  • Buy a large life insurance policy to back a future donation, because of the lower costs of the premiums vs. the amount of the death benefit.
  • Gift a highly appreciated asset to a charity for tax benefits, and purchase a life insurance to replace its value for your heirs.

An example that leaves money to your charity and still gives your loved ones an inheritance:

Jane is 70, and has a $ 200,000 C.D. at the bank.  She doesn’t need the money, but wants to create a meaningful endowment to her favorite charity.  However, she also wants her children to inherit the $ 200k at her death.  Jane purchases a cash value life insurance policy with a

$ 475,000 death benefit, and names her charity as a beneficiary for a portion of the policy proceeds ($275k), and her children ($200k).  Incidentally, if Jane needs the money or changes her mind, she still has access to her cash values in the policy.  Also, the policy can be further designed to include a chronic illness benefit (similar to long term care) or critical illness protection (cancer, heart, stroke, Alzheimer’s, etc.)

There are also potential terrific tax benefits associated with Jane’s planning  Life insurance can be a tremendous tool for many charitable gifting programs, especially given the additional “leverage” of the additional monies that were created from the death benefit being almost twice as large as her original $200k….TAX-FREE!  It can make a wonderful, powerful impact.  When designing a life insurance policy, make sure to use a knowledgeable professional, and consult with your trusted tax advisor about additionally tax benefits. 

Pat Moran is a managing partner at Healthier Money…  He has 35 years of experiences financial services and a recognized financial educator for municipalities, organizations & numerous companies. Healthier Money focuses on conservative planning, guaranteed income & tax efficient strategies. Pat can be reached directly at (602) 571-1035.

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