What Are the Benefits of Donating Your Life Insurance Policy to Charity?
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UPDATED: Mar 24, 2021
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How can a charity turn penny donations into dollars?
Let’s talk about how this works and why every charity should be looking for gifts of life insurance.
Tap Into the Ocean of Charitable Bequests
In a recent report, CharityNavigator.org stated that during 2001 in the U.S.:
- $24.4 billion dollars were donated to charities by bequest.
- 9 of every 10 dollars donated by bequest came from individuals.
- Total giving to charitable organizations was $298.2 billion.
“By Bequest” – In other words, these gifts were made upon the donor’s death, through some instruction by will or trust.
With bequests accounting for just under 10% of all charitable giving for the year, this is a huge opportunity for charities!
If you know of any donors who are planning to make a charitable bequest to your organization as part of their estate planning, you should consider approaching them about using those funds to buy life insurance instead.
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The Gift of Life Insurance
Did you know life insurance companies allow individuals to purchase a policy for the sole purpose of benefiting a charity?
All they have to do is name the charity as beneficiary, or if they already have a policy, consider changing the beneficiary.
Charities Love Life Insurance Because:
- It avoids probate and hold-ups in the settling of an estate
- The charity receives substantially more money, which can help them to fund larger projects
- Publicity from large gifts may help attract other donors
But by far, the most exciting benefit to charities is the “blossoming effect” of life insurance death benefits. Let’s get to that now!
How Life Insurance Can Multiply Planned Gifts by 100% to 2000% or More!
Life insurance is one of the most incredible leveraging tools on the planet!
- A 70-year-old female in good health might have $10,000 set aside in her will for her favorite charity.
- Instead of leaving the $20,000 in savings, she purchases a life insurance policy using a single payment of $20,000.
- This $20,000 could buy a policy with a death benefit of $59,000!
- That’s a return on investment of 195%!
If the insured individual was younger, or paid annually instead of in a single premium, this return on premium could easily be 1000%, 2000%, or tens of thousands of percent.
For example, if this same 70-year-old woman paid for this policy on an annual basis, instead of by lump sum premium, she might pay $1,650 per year for this coverage.
Say she lived 5 years. By this time, she has paid $8,250 in premiums, but the death benefit is $59,000. That’s a 615% return on her money!
Getting Started with Charitable Giving Through Life Insurance
The easiest place to get started is on your organization’s website, following these 3 steps.
- Add a “Ways to Give” tab to your Navigation Bar
- On “Ways to Give” Page – provide general information about giving options, donor levels, and also have a link to “Planned Giving”, which would provide information about life insurance.
- On “Life Insurance” Page – provide general information about making the charity beneficiary of their policy. I also recommend linking to an insurance agency. Ask them to create a landing page specifically for your charity, showing sample scenarios, and where they would be able to get a quote and/or be able to call an agent for personalized assistance.
Have a look at how these 3 not-for-profits offer life insurance as a way to give, on their websites.
You can see they only provide general information about making the charity the beneficiary of their policy or giving the policy to the charity outright, but do not take the step of pointing their interested donors to a place where they can get started.
I recommend taking one step further and linking to an insurance agency’s website, where they can provide a more comprehensive overview of using life insurance for planned giving and give examples of how much their premium dollars could generate for the charity.
Other Ways to Get the Word Out about Life Insurance Gifts
Obviously, your website alone should not be your only method of informing your donors about life insurance gifts.
When I worked on the board at TCPS, we set up meetings and met individually with some of our larger donors to request certain contributions. When you’re talking about this kind of money, a little personal touch may be needed.
You might also consider sending out information about the opportunity to make a gift of life insurance through:
- Your organization’s newsletter
- A mailing to your donors
- Banner ad on your website
- Email list
- or a Blog post
Note: Your potential donor may already be familiar with life insurance, as may affluent individuals use life insurance for estate planning purposes such as paying federal estate tax bill or adding liquidity to their estate.
More Examples of Life Insurance Blossoming into a Sizable Endowment Contribution
A 50-year-old male in good health currently tithes $10,000 per year to his church. He could:
- Reduce his tithe by $2,000 per year
- Allocate these funds to a life insurance policy with guaranteed level premiums for life, and the church named as beneficiary
- His tithe blossoms into a Death Benefit of $225,000 payable to his church.
Benefits to the Church – If we consider this man has a 30-year life expectancy, he will have paid $60,000 in premiums during this period, but at the time of his death, the church will receive $225,000. This is also a minimal loss of current tithing.
The donor’s gift would also be tax deductible to his estate. (Seek your own tax counsel on this, as we are not tax advisers.)
A 75-year-old female in good health has $50,000 set aside in her will for her favorite charity. She does not currently need the money. She could:
- Purchase a single-premium life insurance policy using the $50,000 as premium.
- These funds could purchase a single premium, paid-up policy with a $130,000 death benefit payable to the charity upon her death.
Benefit to Charity – Larger charitable gift, with no loss of current donations.
There are several other ways a charity can receive gifts of life insurance. A few of these are:
- Giving an existing policy to a charity
- Gifting life insurance policy dividends to a charity
- Changing the beneficiary on your existing policy to the charity
These can get a bit complex. The Smart Giver does a good job of breaking down the tax implications and benefits to the donor in this article.
What’s the First Step?
We would be happy to partner with you in your endeavor to secure life insurance gifts for your organization.
We can help you write marketing material and even create a custom landing page for your site’s visitors. Call us to partner with us at 888-603-2876.