Are you passionate about helping charitable causes? Do you want to use your legacy to improve the lives of others? If so, you have a number of planning options available, including charitable trusts, donation of investments and outright cash gifts.
One strategy you may not have considered, however, is using existing life insurance policies to give money to a charity. It’s possible that you purchased your life insurance long ago, maybe when you got married, had kids or bought your first home. Today, you may not have the same need for life insurance coverage. Also, your permanent policies may have accumulated cash value over that time.
You may be able to use your life insurance policies to provide financial help to your charity of choice. Whether you want to provide a one-time lump-sum gift or ongoing support, life insurance could be the answer. Below are several different charitable giving methods to consider:
Charitable Gift Riders
Some insurance companies offer optional benefits known as charitable gift riders. With these riders, you designate a particular charity as a beneficiary. Upon your death, the insurance company pays an extra death benefit to that organization. The extra amount is usually a modest percentage of the total death benefit.
It’s important to note that the charitable portion is in addition to your regular death benefit. The death benefit isn’t reduced by this charity payment. You may have to pay an extra fee for this additional rider, but that could be less costly than other charitable strategies.
You may receive regular dividends in your whole life or universal life policy’s cash value account. Those dividends can be used to pay premiums or buy additional coverage, or you can simply let them accumulate tax-deferred.
However, you can also gift those dividends directly to your charity of choice. Your life insurance company can likely pay the funds directly to the organization. You can also deduct the dividend gift on your income taxes each year.
Are you looking to provide a larger gift than annual dividends? You could give the entire policy to the charity. Under this strategy, you continue to make the premium payments to the insurance company. However, the charity takes over ownership of the policy. When you pass away, the charity receives the full death benefit.
You can deduct any future premium payments from your taxes. However, it’s important to remember that this type of gift is usually nonrevocable. If you change your mind later, you can’t reverse the gift.
This may be the simplest way to use your life insurance to support a charity. You simply name the charity as a beneficiary on the policy. The charity receives its appropriate share of the death benefit just like any other beneficiary.
There are a few reasons why this may be a better option than simply gifting the policy. The first is that it’s revocable. If you change your mind later, you can simply take the charity off the policy. You can also split the death benefit between the charity and your family so everyone is included. Finally, you retain ownership of the policy, allowing you to tap into the cash value should you need it in the future.
Ready to develop your charitable giving strategy? Let’s talk about it. Contact us today at Bridgeriver Advisors. We can help you analyze your needs and implement a plan. Let’s connect soon and start the conversation.
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