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Life Insurance: The Forgotten Gift?

Nowadays, it is not uncommon for people to have more than one life insurance policy.  The policies may have been purchased for a number of reasons, such as to provide financial security for family members, to pay for estate taxes and other expenses associated with the settlement of an estate, or as a savings plan.

It is possible that you actually have excess coverage, in which case a life insurance policy can be a convenient way to give to your favorite charities.

Instead of giving cash or stock, you could sign over your policy to a worthy charity and, generally speaking, and receive a charitable income tax deduction for the replacement value of the policy (or the cost basis, if less).  The charity could cash in the policy and put those dormant dollars to work right away.

To make such a gift, you must assign all rights in the policy to the charity.  You must also deliver the policy itself to the charity. In so doing, you give up all control of the life insurance policy forever. This strategy provides the full tax advantages of charitable giving because the transfer of ownership is irrevocable. The policy is not included in your gross estate when you die, unless you die within three years of the transfer. If that were to happen, your estate would get an offsetting charitable deduction.

Using this strategy, your gift of life insurance can be used to establish a permanent endowment in your name at your charity of choice. Or you can honor someone else through the fund.  The proceeds could also be used to assist with a capital project, or to simply give the annual campaign a mighty boost.

If this sounds intriguing, you may first wish to review the policies you own and ask these questions:

  • Do you have a policy on a child who has now achieved financial independence?
  • Have you paid off your home’s mortgage and no longer need to maintain a mortgage life insurance policy?
  • Do you hold a policy on a business that no longer exists?
  • Did you purchase a policy with a beneficiary family member who has predeceased you?
  • Do you own a policy that your parents bought for you as a child?
  • Do you have a policy to provide you with retirement income that is no longer needed?

You well may find that you have insurance that could be put to a better use than originally intended.  If other assets have grown to provide the protection that you once thought was needed, life insurance can be an extremely versatile tool to meet your charitable giving objectives.

If this scenario describes your situation, discuss the merits of gifting life insurance to a worthy charity with your professional advisor. As always, feel free to call me at 614-338-2365 or email at jjacobs@tcjf.org to discuss this in more detail.

Article appears as originally published in the Ohio Jewish Chronicle, Thursday March 3, 2016.

Jackie Jacobs is the Chief Executive Officer of the Columbus Jewish Foundation, the Central Ohio Jewish community’s planned giving and endowment headquarters. 

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