What Are Charitable Gifts of Life Insurance?

A gift of life insurance to charity may allow a donor to make a substantial gift cost-effectively.

A donor has three basic choices in making a charitable gift of life insurance:

1. The donor may give an existing policy to charity, in which case all incidents of ownership should be assigned to charity, and the charity named as policy beneficiary.
2. The donor may apply for a new policy on his life, with the charity as the original policyowner and beneficiary, subject to state insurable interest laws.
3. The donor may designate a charity as the beneficiary of an existing policy that he or she continues to own, if no income tax advantages are sought.

In situations (1) and (2), the donor may continue paying the premiums or make annual gifts to the charity to enable it to pay the premiums.

Insurable Interest

The great majority of states have enacted legislation to make it clear that a charitable organization has an insurable interest in a donor. In a few remaining states, a charitable organization may not be considered to have an insurable interest in a donor.

The question of insurable interest generally only arises at the time of policy issue, not when some subsequent assignment occurs. Thus, in most of the states in which a charity does not have an insurable interest in its donors, the donor (who always has an insurable interest in his own life) could apply for the policy and then transfer it to charity. A few states, however, may require that a beneficiary have an insurable interest in the insured's life. The donor's legal counsel should check the laws of a particular state.

Limitations on the Charitable Deduction

Federal Estate Tax

Copyright Ó 2005, Pentera Group, Inc., 5546 Shorewood Drive, Indianapolis, Indiana 46220. All rights reserved.