Most organizations seek to cultivate regular donors, that is, people who donate a constant amount at regular intervals, like $50 per month. But what if I told you that the same $50 a month could provide a future donation of over seven times the amount, if donated via a life insurance policy? What’s more, donating via life insurance can reduce your donors’ tax loads. You win, and your donors win!
Life insurance donations are a type of planned gift, i.e. a donation which will come into your organization after the donor passes away. It is a very advantageous strategy both for you and your donor, because it maximizes the donation to you and provides tax breaks along the way for the donor, all for the same monthly outlay on your donor’s part.
There are three ways a donor can use life insurance to donate to you.
In this case, the donor owns the policy and your organization is the beneficiary. The donor retains control of the policy, including the power to re-name the beneficiary to a different charity. Donor stewardship is always important, but especially when they have the power to give a big donation somewhere else at the stroke of a pen.
Aside from retaining control, this scenario has some other benefits to the donor. The death benefit qualifies as a tax credit on the final income tax return, after the donor has died. In addition, having a direct beneficiary means that the life insurance death benefit bypasses the estate and avoids probate fees, which can amount to thousands of dollars, depending on how wealthy the person is when they pass away.
In this scenario, the donor keeps up the premium payments, which are now tax-deductible because they are a charitable donation. Your organization has more control in this scenario because you own the policy; however, the donor still has the power to stop paying the premiums. That means that donor stewardship is still extremely important.
By this method, your organization gets the donation right away, instead of after the donor’s death. The donor gets a charitable tax receipt for the amount of the donation, or the fair market value, in the case of other assets such as securities or property. The donor can use these tax savings to buy a life insurance policy for the value of the donation, naming their heirs as beneficiaries. This process is called “wealth replacement”.  This method allows the donor to give a generous inheritance to their heirs which is free of probate and inheritance taxes.
Using life insurance to donate to charity is really a win-win for both donors, organizations, and the donors’ heirs. If you would like to learn more about this, come to our upcoming lunch & learn seminar with Jad Atik, a certified financial advisor.
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