Life insurance is a great way to give a planned gift. There are many advantages, yet it is one of the most overlooked methods of charitable giving. The main feature of using life insurance is that your gift may be multiplied several-fold. A small monthly premium can mean tens of thousands of dollars will be paid to the beneficiary of your policy.

Immediate or Deferred Tax Benefits

The tax advantages of using life insurance for planned giving are enormous. If you acquire a new policy, naming your church or other charity as the owner and beneficiary of your policy, you receive an annual tax receipt for every dollar you pay in premiums. Alternatively, you can simply name your church as a beneficiary of a new or existing policy, in which case your estate would receive a tax receipt for the total death benefit. If you have a current policy, you may obtain a Change of Ownership Form from your insurance company, naming your church or other charity as the owner and beneficiary of your policy. You will then receive a tax receipt for the cash value accumulated in the policy plus receive annual tax receipts for any additional premiums you pay going forward.

Life Insurance as Wealth Replacement

Life insurance can also make an effective wealth replacement strategy. Suppose, for example, you were planning on leaving your non-registered investment account to your children through your Will but would now like to make a charitable gift. You could give a portion of the appreciated securities in your account to your church, eliminating the capital gains tax, and then use the money you save in taxes to acquire a life insurance policy naming your children as the beneficiaries. They would then receive the proceeds from the life insurance policy tax-free immediately upon your death, and the church would receive a generous legacy gift while you are living—a true win-win-win situation: a win for the charity who is the beneficiary of your gift of securities, a win for your children who will likely receive a larger inheritance through your life insurance policy, and a win for you who benefit from knowing you have left significant legacy gifts for the children and the church you love.

Keep in Mind

  • In order to maximize your gift, make sure you are able to utilize all of the available tax credits. Talk with your financial adviser to determine whether you should set up your policy so that you receive the tax credits while you are living or through your estate after your death.
  • Whole life or universal life policies generally make better planned giving vehicles than term life policies, since term life policies do not accumulate any cash value, have regular increases in premiums when you hit certain age thresholds, and become null and void after you stop paying the premiums. Talk to your insurance broker and financial adviser as to what type of policy they would recommend for your particular situation and philanthropic goals.