If you are someone who regularly donates to one or more charities in a year, and wish to give more to your chosen charity or charities once you have passed away, then you may be pleased to know that you have the option of using your life insurance policy to make your charitable donation.
Donating to charity in this way is something that millions of Americans do. And not only cash can be donated, you can also donate your property to charity as well. There are a number of ways that a life insurance policy can be donated to charity, and they are explored below. But before this is done, how to save for a charity donation will be explored.
Saving Your Nest Egg for a Charitable Donation
Universal life insurance can represent the best way to save for a future charitable donation, as it can offer more control than other types of life insurance coverage. A universal life insurance policy also offers more liquidity, which can mean more of a donation being able to be given.
The reason a universal life insurance policy is more beneficial is because it pays out upon the death of the policy holder and carries a minimum rate of return, otherwise known as a crediting rate. Once the insurance company has deducted the insurance cost, the policy is credited with the balance, which builds cash value. As far as premium payments are concerned, the universal life insurance policy offers flexibility with premium payments, which can by paid annually or on a one-time basis.
How to Accomplish Charitable Giving With a Policy
The Charitable Rider
A charitable giving rider is a new option now offered in relation to today’s life insurance policies. The great thing about the rider is that it doesn’t cost the life insurance policy holder any additional money to add to their policy.
A charitable rider can be added to any policy having a face value of over one million dollars. As well, they will pay up to two percent of the face value to the policy holder’s chosen charity. And a charitable rider will not reduce the cash value, death benefit or the premiums of a policy.
Naming a Charity as Beneficiary
This method represents possibly the easiest way for anyone to donate to their favorite charity upon their death. All this method involves is to indicate the charity’s name where a beneficiary’s name is requested on your life insurance policy forms. However, it’s important to be aware that naming a charity as a beneficiary will not offer you the tax benefits available from other methods like the policy donation. As well, naming a charity as beneficiary to your life insurance policy will mean that your estate will be reduced by the amount of the death benefit indicated in your policy.
Policy Donation
This process involves gifting one’s entire life insurance policy to a charity. While this can be more of a complicated process than other gifting methods, it does offer many benefits. First, the donor’s taxable estate can be greatly reduced by donating in this way. It can also result in income tax deductions at the fair market value of a policy.
What attracts many donors to this method is the fact that a policy donation ensures that the chosen charity receives the full face value of the policy when the policy holder passes away. The amounts yielded from a policy donation will usually far outweigh those paid out on a policy where a charitable rider was obtained.
The Benefits of Giving via Life insurance
There are major benefits to using your life insurance policy to donate to charity. One of them is that donating in this way means that the policy doesn’t need to go through probate once the owner is deceased.
As well, this type of charitable donation can help to keep donation recipients anonymous. This is because of the nature of the insurance policy. Unlike probate, which is a public process, changes to insurance provisions are a confidential matter.
Guest author Adam Foley writes on a variety of topics, but is particularly well-versed on the topic of insurance. He has developed a helpful way to compare life insurance companies and options available to consumers.