2025 Guide: How Charitable Gift of Life Insurance Works & Costs

A charitable gift of life insurance is a strategic way to support your favorite charities by purchasing a life insurance policy and designating a qualified nonprofit as the beneficiary. You continue paying the premiums, and upon your passing, the charity receives the death benefit.

Key Insights

• This philanthropic tool lets you name a charity as a beneficiary on your life insurance policy.
• You remain responsible for premium payments during your lifetime.
• Beneficiary designations can often be updated before death, depending on the policy type.
• The death benefit paid to charity is excluded from your taxable estate, offering estate tax advantages.

How Charitable Gift of Life Insurance Functions

By choosing this giving method, you integrate philanthropy into your estate plan. You purchase a life insurance policy and assign a qualified 501(c)(3) nonprofit organization as the beneficiary. The charity must meet IRS nonprofit criteria.

One major advantage is that the death benefit paid to charity is not included in your taxable estate, potentially reducing estate taxes. However, unlike direct charitable donations, premiums paid on the policy are not tax-deductible during your lifetime.

This approach clarifies your philanthropic wishes and can minimize legal conflicts among heirs after your death.

Important Considerations

You can designate multiple charities as beneficiaries under a single policy. Additionally, some policies allow anonymity for donors and beneficiaries, helping to avoid probate disputes.

Depending on your insurance contract, you may retain the right to change the beneficiary designation before death. Irrevocable life insurance trusts typically restrict beneficiary changes.

Charitable Giving Riders Explained

Instead of naming a charity as the primary beneficiary, you can add a charitable giving rider to your policy. This rider instructs the insurer to allocate a specified portion of the death benefit to a charity.

Riders simplify charitable giving by eliminating the need for separate gift trusts and often come at no extra cost. They do not reduce the policy’s cash value or death benefit.

Quick Fact

Most insurers allow adding a charitable giving rider without additional fees, preserving your policy's full value.

Example Scenario: Donating to American Red Cross and Goodwill

Imagine you want to support the American Red Cross and Goodwill Industries. You purchase a whole life insurance policy with a $300,000 death benefit and name both charities as equal beneficiaries.

You pay premiums throughout your life, and upon your death, each charity receives $150,000. While premiums are not tax-deductible, the death benefit is tax-free for the charities, ensuring your gift maximizes impact.

Tax Deductions and Estate Implications

Although the death benefit is excluded from your taxable estate, premiums paid during your lifetime do not qualify for tax deductions. This means the primary tax benefit is realized through estate tax exclusion rather than income tax deductions.

Modifying Beneficiary Designations

Generally, you can update your beneficiary from a charity to another individual or organization by contacting your insurance provider. This flexibility allows you to adjust your philanthropic plans as circumstances change.

Can Beneficiary Designations Be Contested?

Beneficiary designations can be legally challenged by family members or other parties claiming entitlement. Such disputes typically involve legal counsel and notification to the insurance company.

Final Thoughts

Using a charitable gift of life insurance is a powerful way to leave a lasting legacy while potentially reducing estate taxes. Consult with a financial advisor to tailor this strategy to your financial and philanthropic goals in 2024.

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