How can I donate my life insurance policy? Many people purchase a life insurance policy to offer security and protection for their loved ones in case they pass away. So, if you pass away, the beneficiaries mentioned in your policy will receive death benefits that will help cover the cost of college tuition, daily expenses, and even debts.
Apart from this, with your life insurance quote, you will leave a legacy for your loved ones. But did you know that your beneficiaries do not have to be only humans? Yes, you can make organizations your beneficiaries as well. Therefore, it is 100% possible to donate your life insurance to these organizations. If you put an organization as your beneficiary, they will receive or get the death benefits.
Types of Life Insurance That Can Be Donated
A permanent or term life insurance policy can be donated. However, term insurance quotes are not a good option because they are valid for a specific number of years. Nevertheless, here are some of the best life insurance policies to donate:
- Whole life insurance.
- Variable life insurance.
- Term life insurance.
- Universal life insurance.
Thus, if you have a life insurance policy that falls into any of the categories mentioned above, you can willingly and freely give away your policy.
How Does the Donation Process Work?
The most typical way to donate one’s life insurance policy is to identify a charity, organization, or individual as the beneficiary. Instead of transferring the whole death benefit, you can choose to transfer your policy’s ownership or gift dividends. Meanwhile, it would be best if you considered the benefits and implications of your decision to donate.
Besides, some insurance providers need you to provide proof of a donation you have made in the past before you can state your beneficiary. In the same manner, other companies have fewer requirements. The donation process is relatively simple and can be carried out smoothly if followed correctly.
Can I Donate My Life Insurance to Charity?
Yes, of course. If you are a policyholder of a life insurance quote and you are interested in supporting a cause, a charitable donation of your quote is an excellent idea. Besides, you get to benefit while you are alive, and your beneficiaries after you pass away.
Why Should I Donate My Life Insurance Policy?
There are amazing benefits that come with donating your life insurance policy. For instance, you get to leave behind a beneficial impression and influence in your community. Additionally, this process is associated with other benefits, especially when it comes to taxes. This means that donating your life insurance can have an impact on your taxable income. These are the benefits that you can enjoy when you donate your life insurance policy:
- Escape capital gains taxes.
- Tax benefits.
- Supporting and contributing to a cause.
Here are some charities that accept these life insurance donations:
- Religious organizations.
- 501(c)3 organizations.
- Educational institutions.
- Health and disease research charities.
How to Donate Your Life Insurance Policy
There are different ways to donate life insurance to charity. However, it is important to note that the method you use will determine your tax consequences. Sometimes, insurance companies ask policyholders to provide a history of donations to a certain charity.
But before we begin, here are some important parties that take part in the process, and you need to know them well:
- Insured – The person covered by the insurance quote.
- Beneficiary – The receiver of the death benefit.
- Owner – The person in charge of controlling and managing the contract.
- Payor – The insurance company or person who will pay for the life insurance quote.
Now, let us get into it:
Making the Charity Organization the Beneficiary of your Policy
One of the best ways to donate your life insurance policy is by making the charity organization you want to give your benefits to the beneficiary. Moreover, it is quite similar to when you make people your beneficiaries. Since you can divide your death benefits among different people, you can do the same between your loved ones and a charity organization.
Pro and Con to Owner
Pro: You are still the owner of the policy and have access to the cash value accumulation.
Con: You will have to keep making monthly premiums to keep your quote active.
Pro and Con to Charity
Pro: The organization gets a lump-sum payment.
Con: The owner has the right and power to change beneficiaries at any time; they are advised not to rely too much on the payout.
Gifting Dividends
Gifting dividends is another way you can donate your life insurance quote to charity. So, if you have a permanent life insurance quote and do not want to transfer ownership, you can give the dividends you receive from the insurance company to charity.
Pro and Con to Owner
Pro: You can use a tax deduction to donate the life insurance dividends.
Con: The dividends are connected with the death benefit.
Pro and Con to Charity
Pro: Cash contribution.
Con: The dividends are not guaranteed.
Transferring Ownership
Instead of making the charity organization your beneficiary, you can just transfer ownership of the quote to the organization you want to make the owner. Therefore, they will have full control of the policy. What’s more, the organization can make themselves the beneficiary of the policy and get a payout when you pass.
Pro and Con to Owner
Pro: The owner can get an instant charitable contribution tax deduction for transferring ownership of the policy.
Con: You cannot change your mind.
Pro and Con to Charity
Pro: They now have full control of the contract.
Con: The charity will be responsible for making premium payments.
With these methods, you will be able to donate your life insurance policy to any charity organization you want.
