Making Charitable Donations With Life Insurance

Each year millions of Americans make donations of cash and property to the charities of their choice.  While these donations can provide valuable tax deductions, many donors wish that they could do more for the charities they support.  Thus, it would be wise for some donors to consider using their life insurance as a more effective means of leveraging the support they provide. 

One way of doing this is to gift a life insurance policy, which can in turn greatly reduce the donor’s taxable estate and save thousands of dollars in estate taxes.  There is no limit on the size of the policy that may be donated, since charitable donations have no ceiling for estate tax purposes.

Naming a charity as a beneficiary of your life insurance policy is the simplest way to provide a charity with the death benefit proceeds from a policy.  However, this strategy does not offer the income tax advantages that come with the gifting policy, although it still reduces the donor’s estate by the amount of the death benefit. 

It is also possible for policyholders to receive the dividends paid to their life insurance policies in cash and donate them to a charity.  The dividends donated are deductible in the same manner as premiums paid on a gifted policy.

See Mark P. Cussen, Using Life Insurance to Make Charitable Donations, Investopedia.