I’m going to let you in on a secret: You don’t have to be a millionaire to give back like one. Life insurance is an affordable way to leave a large, lasting legacy to a charity, school, or religious organization. If you currently donate sporadically or even commit annually to charitable organizations, adding life insurance as a planned gift can exponentially increase your impact.
Here’s why: Planned giving is not limited by your current wealth. A small increase in your monthly budget that goes toward a life insurance premium payment can result in a substantially larger gift at your passing than recurring donations that are based on your regular income.
For example, for about $75 a month, a 50-year-old can use a permanent life insurance policy to leave a $50,000 tax-free gift upon their death. It would take roughly 125 years to give that same amount in $400 annual donations to your charity. And for a 40-year-old, that monthly policy payment is just $60 (cost is subject to the health and lifestyle of the donor).
So, how does it work? You purchase a permanent life insurance policy and name the charity of your choice as the beneficiary. The beneficiary is the person or organization you designate to receive the proceeds when you die.
Permanent life insurance policies cover you for life as long as you pay your premium, which makes them ideal for planned gifts. And it can often fit into your budget more easily than you might think—the younger you are, the more affordable the policy can be. So, the best time to choose life insurance as a giving vehicle is now!
Three Key Questions about Life Insurance and Charitable Giving
Q. If I buy a life insurance policy, can I split the proceeds between a charity and my family?
A. Yes! You can name more than one beneficiary, as well as the percentage of the payout you want to go to each one—for instance, you could designate 50% to a spouse and 50% to a charity.
Q. How is the death benefit from my life insurance policy paid to my charity?
A. Nonprofits collect the policy proceeds (a death benefit) when you pass away. The life insurance company will look at the beneficiaries on your policy and pay the organization directly, typically in one lump sum.
Q. Will the money from my life insurance policy be taxed when my charity receives it?
A. In most cases, the people or organizations that receive the proceeds from a life insurance policy do not have to pay taxes on it.
Life insurance policy proceeds are among the largest gifts a nonprofit will receive, often 20 to 100 times the size of annual gifts. Planned giving contributions are vital to a nonprofit’s longevity and ability to carry out its mission, and they help organizations weather annual fluctuations in charitable donations. If you’re passionate about making a difference and want to increase your effects exponentially, life insurance can be an excellent way to make that happen.