Gifts of Life Insurance

It is common for people to have more than one life insurance policy. Some policies are purchased to provide financial security for members of their families, and others are used pay for estate taxes and other expenses associated with the settlement of an estate or as a savings plan.

But not only does life insurance serve a versatile financial planning tool, it can also be a convenient way to give to your favorite charity.

Benefits of Gifting Life Insurance to Charity

A gift of life insurance is economical and tax deductible in most cases, and it is usually an easy donation to make. Additional benefits of donating life insurance include:

• Flexibility – so it can meet a variety of charitable giving goals.
• Confidential – donations of life insurance are not matters of public record.
• Immediate – proceeds from the policy pay the beneficiary in cash quickly after death and usually are not involved in the probate process.

Gifts of Existing Life Insurance Policies

Perhaps you want to gift your existing life insurance policy to a charity. You may first wish to review your policies, and then ask yourself these questions:

• Do you have a policy on a child who has now achieved financial independence?
• Have you paid off your home’s mortgage and no longer need to maintain the policy?
• Do you hold a policy on a business that no longer exists?
• Did you purchase a policy with a beneficiary family member who has predeceased you?
• Do you own a policy that your parents bought for you when you were a child?
• Do you have a policy to provide you with retirement income that you no longer need?

If you have excess life insurance, you may consider including it in your charitable giving plans. Below are some ways to support Bethesda through life insurance.

• Simply name Bethesda Health Group as beneficiary (primary, secondary, or final) of your existing policy.
•  Purchase a new policy naming Bethesda Health Group as owner.
•  Donate a paid-up policy by changing the owner to Bethesda Health Group.
• Donate a policy on which you are continuing to pay premiums by naming Bethesda Health Group as the owner or irrevocable beneficiary.
• If you are uninsurable, you might be able to purchase a policy on the life of another person and name Bethesda Health Group as owner or irrevocable beneficiary.
• Assign life insurance policy dividends to Bethesda Health Group to make a convenient tax-deductible gift.

Tax Benefits of Gifting Life Insurance to Bethesda

• If you donate a paid-up policy, you may deduct the approximate cash surrender value in most cases.
• If you purchase a new life insurance policy, you may deduct the paid premiums on your income taxes providing Bethesda Health Group is owner of the policy.
• If you donate a policy on which you are continuing to pay premiums, you may deduct the approximate cash value in most cases. In addition, future premiums may be paid if the policy is renamed with Bethesda Health Group as the owner as primary, secondary or final beneficiary of a policy you already own. In these cases, premiums are not deductible on your income taxes since beneficiaries listed on the policy may be changed.

Example 1: 

After meeting with her professional tax advisor, Mrs. Smith purchases a new $250,000 life insurance policy with $200 monthly premiums. She names her favorite qualified charity as the policy owner and beneficiary. As long as she pays the premiums each month, she is entitled to take a $2,400 tax deduction on her annual federal income tax return. Since the owner and beneficiary of the policy is the charity, the policy proceeds will not be included in Mrs. Smith’s estate, nor will they be subject to probate.

Example 2:

When Mr. and Mrs. Johnson had their first child, they purchased a life insurance policy as a savings plan to pay for their child’s education. Unfortunately, the child passed away prematurely, and the couple had a policy they no longer needed. After meeting with their tax advisor, Mr. and Mrs. Johnson, as an ongoing memorial to their child, decided to assign policy ownership to their favorite qualified charity and continued to pay the policy premiums, which entitled them to certain tax deductions. This enabled the Johnsons to memorialize their child in a special way and still meet their charitable giving goals.

Life insurance may be extremely versatile in helping you meet your charitable giving intentions. If you have questions about making a gift of life insurance, please do not hesitate to contact the BHG Foundation, 314-800-1981.

This article is not intended as legal advice. State laws vary and are subject to change. We strongly recommend you consult your attorney or tax consultant when considering any legal or tax matter.