Can You Donate a Life Insurance Policy to Charity?

If you really have a favorite charity and want to make a sizeable donation, you might consider Life Insurance. You can donate a Life Insurance Policy to a charity and realize a tax deduction on the premiums.

You really have complete freedom when it comes to naming a beneficiary for your Life Insurance Policy. There are good ideas and bad ideas, but really no regulations that stop you from naming anyone or anything to receive the death benefit should you die. So, it is possible to name your favorite charity. The charity can be named as a partial beneficiary. This way you can still make sure your family is receiving the bulk of the benefit with a smaller portion going to the charity.

You may also decide to name the charity as the sole beneficiary. There is no limit to the number of policies you may own. You can have one policy for your dependents and purchase another just for the charity. There are some practical reasons why this is a good way to support the charity. There are tax considerations involved also.

If you assign an existing policy to a charity, you will only be able to claim the redemption value of the policy as a charitable deduction. Unfortunately, you can not claim the death benefit although that substantially higher sum is what the charity will actually receive upon your death. If you are splitting the policy between beneficiaries, only the portion of the redemption value that corresponds to the charitys share is allowed as a deduction. This deduction is taken in the year the assignment of beneficiary is made.

If you are buying a new policy, it will have no redemption value during the year of purchase, so you will only be able to claim the premium. In subsequent years, you can continue to deduct the costs of premiums from your taxable income as a regular charitable donation. You may gift the funds directly to the charity and allow them to pay the premium, or with a written agreement with the charity for audit purposes, you may make the premium payment directly to the Insurance Company.

As in any situation involving Insurance and taxation, it is necessary to consult with both your Insurance Agent and a tax professional to make sure all regulations are being followed. Taxation and Life Insurance can be a complex matter and regulations are always subject to change by the Internal Revenue Service. It is never a good idea to make assumptions. Consult with professionals and make certain that your wishes and the law are both satisfied.

Barry Waxler is a financial planner in San Diego and can be reached at UFCAmerica.com.

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