Loading the player...

What is 'Charitable Gift Life Insurance'

Charitable gift life insurance is a method of contributing to charity by taking out life insurance on yourself with the charity as a beneficiary. Using charitable gift life insurance may allow donors to amplify their giving power. Rather than giving large cash gifts as part of a will, some donors find it easier to simply pay the life insurance premiums.

BREAKING DOWN 'Charitable Gift Life Insurance'

Using charitable gift life insurance means the donor does not get a tax deduction for the premiums paid. However, the amount of the death benefit paid to the charity will be deductible for estate tax purposes. Charitable gift life insurance may also be less likely to cause probate disputes, since the intention to make the gift is clearly laid out by the insurance contract.

Benefits of Charitable Gift Life Insurance

Naming the charity of your choice as the beneficiary of your life insurance policy is the simplest way to provide a charity with the death benefit proceeds from a policy, although it does not offer the income tax advantages that come with gifting a policy. However, it still reduces the donor's estate by the amount of the death benefit. Donors who are unsure of exactly how they want to apportion their assets after death can list a charity as a revocable beneficiary if they so choose. This gives them flexibility in future planning in case their financial situation changes. 

Despite naming a charity as the beneficiary of a life insurance policy, the policyholder will still retain a high degree of flexibility. For instance, a policyholder can borrow against the policy and take cash withdrawals. Of course, doing this will reduce the value of the future gift. If a policyholder changes their mind, they can name another beneficiary or cash out. Policyholders also can split the beneficiaries among two or more organizations—say your college and your local food bank.

Naming a charity as a beneficiary also ensures the privacy of the transaction, which can be important for donors who wish to keep their gifting intentions secret from their families or other heirs. Transfer of assets from an insurance contract is also absolutely incontestable, thus rendering anyone contesting the estate settlement powerless to stop it. Furthermore, the donor remains in a position to change the beneficiary prior to his or her death. If the donor chooses to stop paying the premiums, the charitable organization can choose to continue the process or can allow the policy to lapse.

RELATED TERMS
  1. Gift Letter

    A gift letter is written correspondence explicitly stating that ...
  2. Gift

    A gift is something of value that is given tot another party ...
  3. Gift Inter Vivos

    A gift inter vivos, which is Latin for between the living, is ...
  4. Pooled Income Fund

    A pooled income fund is a type of charitable trust.
  5. Additional Death Benefit

    The amount that is paid to the beneficiary of a life insurance ...
  6. Gifting Phase

    The gifting phase is an investment stage at which individuals ...
Related Articles
  1. Insurance

    Using Life Insurance to Make Charitable Donations

    Find out how your life insurance policy can be a great tool for charitable giving.
  2. Taxes

    3 Ways to Minimize Your Taxable Gains By Giving

    Consider these three ways to minimize taxable gains via charitable contributions.
  3. Taxes

    How to Avoid Gift Taxes

    For most, the answer to the question, “How much is the gift tax?” can be “nothing."
  4. Retirement

    How to Minimize Estate Taxes via Charitable Giving

    Here are several ways to reduce your taxable estate while providing a gift to a worthwhile cause.
  5. Taxes

    How to Give a Tax-Saving Gift Before The Year Ends

    Giving to charity and family members before year-end can help you save on 2016 taxes.
  6. Retirement

    Guiding Clients on Charitable Remainder Trusts

    Clients who wish to make donations to charity can reap an enormous tax deduction with charitable remainder trusts, but it must be set up correctly.
  7. Taxes

    How to Pick a Charity

    The increasing number of charitable organizations mean the competition is fierce for your charitable dollars. Use these tips to research before donating.
  8. Taxes

    Charity CEOs: Are They Being Paid Too Much?

    Deciding how much charities should spend on the salaries of their CEOs is more difficult than you may think.
  9. Taxes

    Valuable Year-End Tax Moves for 2016 (Part Three)

    Here's a look at tax strategies for itemized deductions, charitable gifts and other tax credits.
Trading Center