Thinking of Leaving Life Insurance Money to Charity?
If you're thinking about leaving part of your estate to a charitable or nonprofit organization there are a few things you should mull over before making detailed arrangements.
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Life Insurance Charitable Giving Considerations When Leaving Your Life Insurance Policy to A Charity
Sometimes people who have benefitted from a charitable organization, or know someone who has, may wish to donate their life insurance policy to a charity or other nonprofit organization as part of their estate planning. If this is something you've been thinking about, then there are a few things you should consider before making specific arrangements.
The type of policy
There are certain policies that lend themselves better to charitable giving. For example, a term life policy may not be the ideal choice, only because it can potentially expire before you die. Permanent policies such as whole life or universal life don't carry an expiration date, as long as premiums are paid, and could better ensure a payout is made to your charity.
Tax deductions
The tax deductible benefit for leaving your life insurance to a charity is equal to the policy's cash value, plus any premiums paid on the policy after the gift is made. However, to take advantage of the income tax benefit, you would need to name your charity as both the owner and the beneficiary.
Who receives what and how much
What if you don't want to leave your entire policy to a charity? When you name a charity as a beneficiary, you can specifically designate how much you want to give. Some life insurance carriers even provide the option of adding a charitable-giving life insurance rider. This rider can be attached to policies with face values of over $1 million, allowing up to 1-2 percent of the policy's final payout to go directly to the organization of your choice.
Keeping your options open
If you definitely want to donate your life insurance policy to a charity but aren't 100 percent sure which one (or think you might change your mind about an organization some point in the future), then you should maintain ownership of the policy and simply name the charity you have in mind today as the beneficiary. This may exclude you from being eligible for an income tax deduction, but it allows you to easily change the beneficiary in the event you change your mind.
For more information on estate planning, visit the Protective Learning Center.