Term Life Insurance As A Charitable Gift
Below is a MRR and PLR article in category Finance -> subcategory Wealth Building.
Term Life Insurance: A Charitable Gift
Overview
Term life insurance is commonly purchased when we're younger, with the intent of providing security for our families. However, over time, these policies may outlive their original purpose, especially if your spouse no longer needs financial protection or your children become financially independent. In such cases, donating your term life insurance policy to a charity can be a rewarding choice, offering potential tax advantages for those with significant assets.
How to Donate Your Policy
There are a couple of ways to contribute your life insurance policy to a charitable organization:
1. Purchase a New Policy: Buy a fresh policy and designate your chosen charity as the beneficiary.
2. Change the Beneficiary on an Existing Policy: Simply update your current policy to name the charity as the beneficiary. This means that upon your passing, the charity will receive the full policy value.
Essential Information for Listing a Charity
When designating a charity as your beneficiary, you’ll need:
- The charity’s full legal name.
- Permanent mailing address of the charity.
- The organization's federal tax identification number.
- Your relationship status as "charity."
Charities typically have a designated person to handle gifts and donations. They can assist with any questions or paperwork.
Rules for Paid and Unpaid Policies
- Paid Policies: If your existing policy is fully paid, you might deduct the lesser of its fair market value or your cost basis. With the charity owning the policy, the proceeds won’t be part of your taxable estate.
- Unpaid Policies: If still paying premiums, you may deduct the lesser of the cash value or the cost basis during the donation year and potentially future premium payments too. Again, the charity's ownership means the proceeds are excluded from your estate for tax purposes.
Group Term Life Insurance
If you have group term life insurance through your employer, you can donate any excess coverage. Employers often offer substantial life insurance benefits, yet many don't inform you that coverage exceeding $50,000 is taxable. You can avoid this by donating the excess coverage to a charity, allowing you to contribute without personal premium expenses and enjoy tax savings. For details, consult your company’s benefits department.
Conclusion
Turning your term life insurance policy into a charitable gift can provide tax benefits and other financial advantages for your estate. It’s advisable to discuss your options with a financial advisor to ensure both your family and chosen charity benefit from your decision.
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