Can I Gift My Life Insurance to Charity?

Life insurance has long been touted as an essential strategy for protecting a young and growing fam- ily. As we age, however, life insurance becomes more expensive and the need for it may lessen. Recently, clients of ours asked about donating a life insurance policy to charity. They had already put away their “nest egg” for retirement and their children were grown and independ- ent. They also did not believe that their estate would be taxable or that the policy would be needed for estate liquidity and wanted to make a meaningful charitable contribution. Upon reflection, we were able to give them several options.


First, you may donate an existing life insurance policy to your favorite charity outright. To do so, you need only change the ownership of the pol- icy. Your insurance company can provide you with the forms. Speak with your tax adviser about whether this would qualify for a charitable in- come tax deduction for the value of the policy at the time of the gift – but don’t be fooled. The value is not the face amount of the policy. You must ask the insurance company to assist you in ascertaining the policy’s value.


If you change ownership and the policy has ongoing premiums, those would be the responsibility of the charity. You can increase the value of your contribution, however, by con- tinuing to make the premium pay- ments to the insurance company on the charity’s behalf. Alternatively, you can pay the premium to the charity and let the charity pay the in- surance company. To the extent that you continue to pay premiums on a policy that is owned by the charity, your premium payments would also be tax deductible.


Another option is to convert the policy to a paid-up policy. This will re- duce the proceeds upon your death but the charity will have no premium payments to make during the balance of your life. This will eliminate the possibility that the policy will lapse because the charity cannot afford to make premium payments or because it fails to make a timely payment.


You may also consider gifting a new life insurance policy to the charity. If you are considering this option, however, please note that, if the charity is going to be the owner, it must have an “insurable interest” in the donor. Thus, unless you have a strong, ongoing relationship with the charity, you may have difficulty satisfying this requirement.


It is important to consider how best to utilize the value of your life in- surance policy when doing estate planning. If you are contemplating charitable giving, a life insurance pol- icy may be a convenient mechanism for accomplishing your goals. Re- member, the beneficiary designation on file with the insurance company will govern to whom payment will ul- timately be made. It is essential to re- view these in conjunction with any change to your estate plan. Work with an experienced estate planning attorney to ensure your charitable giving is effective!