CHARITABLE GIVING: knowing the ‘ins’ & ‘outs’ of life insurance

October 4, 2022

2 minute read – Who can purchase a life insurance policy, get a tax deductible premium/donation, annually? And, for what amount of life insurance benefit to the charity?  You can, maybe. With certain insurance companies.

A recent survey (in 2022) was conducted of major insurance carriers that revealed the starting point, and often the finish line, for the amount of death benefit they would entertain for charities /non-profit organizations as owners and beneficiaries of such policies was only ten times the annual donation pattern the insured had with the charity.

For example, if Benjamin Button has been giving $5,000 a year to the Warm Hearts Charity, he is only good for $50,000 coverage to leverage his legacy. One insurance carrier would allow twenty times.  Another permitted the projected value of the pattern of giving for 75% of the donor’s life expectancy.

Nonetheless, there are circumstances where insurance carriers may look beyond the donation-multiple standard. But there is a standard.

Forty years ago as states began passing laws giving charities an insurable interest in the lives of donors, it wasn’t much trouble getting a significant amount of charity-owned coverage on the life of a person who intended to donate the premiums each year to the organization (the organization in-turn paid the life insurance premium due with this donation).

The problem arose when an invigorated life settlement marketplace created an attractive non-correlated asset class and groups of independent investors arranged for charities to buy coverage on donors paying the premiums and anticipating returns for all involved when the policy was sold later on in the secondary market.  All of this to say, what was a kind-hearted intent turned sour in the later years. And here we are today.

Here’s the bottom-line. As a consumer, and potential insured interested in donating a new life insurance policy to your favorite charity, with on-going donations to said charity who pays the premium due (charity is owner and beneficiary), it’s smart to get advice from an experienced insurance advisor who knows a quality short list of insurance carriers interested in working on this generous idea.

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