Regardless of the type of life insurance policy you have, you can give some of your death benefit to a charity. There are a few ways you can ensure some of your policy proceeds support an institution you care about
The best solution for you depends on your overall estate plan. For most people, naming the charity as the beneficiary of your life insurance policy is the simplest option.
Naming a charity as your life insurance beneficiary
Your beneficiaries are usually the main reason you purchase life insurance, because the proceeds can offer them financial support when you’re not around to provide for them. But if your beneficiaries won’t need the full death benefit, you can set aside a portion for a charitable donation.
Naming a charity as a life insurance beneficiary is simple.
You can write in the charity name and contact information when you choose or change your beneficiaries.
You can name multiple beneficiaries and specify what percentage of the death benefit should go to each.
For example, you can give 100% of your benefit to charity, or 80% to your family and 20% to charity, or any other combination.
An alternative is to name a charity as a secondary beneficiary, also called a contingent beneficiary. If your primary beneficiaries can’t accept the death benefit, the charity would get your insurance payout.
There’s no federal tax benefit or state tax benefit for naming a charity as your life insurance beneficiary, and you can’t write off your premium payments as a tax deduction. You can only claim a charitable deduction if a charity owns your policy and you pay the premiums.
Adding a charitable giving rider
Life insurance riders are additional features you can purchase to customize your life insurance policy. A charitable giving rider pays out an additional amount to the charity of your choice when you die. The donation doesn’t detract from the death benefit to your beneficiaries. Some insurers may include the rider at no additional cost, but it depends on the company.
However, there are some limitations.
Not all life insurance companies offer charitable giving riders.
If your insurer does offer this feature, it may only be applicable to high-value policies with at least $1 million of coverage.
Plus, the charity chosen has to be recognized by the IRS, usually as a 501(c)(3) organization.
How to find an IRS-recognized charity
Some institutions that ask for donations are for-profit groups that you can’t name on a charitable giving rider.
The IRS considers the following to be qualified charities:
Religious organizations and places of worship
Literary and arts organizations, including museums, and art galleries
Public charities (e.g. the American Cancer Society)
Private foundations (e.g. the Bill and Melinda Gates Foundation)
You can also search the IRS database to confirm that an organization appears in its records.
Religious institutions are tax-exempt, so they may not be registered with the IRS. You can still donate proceeds from your life insurance to a religious organization using any of the other methods outlined here.
Charitable giving through a trust
Putting your life insurance into a trust is useful if you want to have more control over how the money is spent after you die. A beneficiary can technically spend the death benefit however they want, but if you put your policy into a trust, you can dictate how and when the money gets spent.
Setting up a trust is complex and should be done with the help of an estate planning attorney. You can set up your trust documents to specify where to donate, how much, and when once your life insurance money is in the trust.
Donating your permanent policy
You can gift an entire permanent life insurance policy to a charity while you’re still alive. Permanent life insurance is a type of policy that lasts your entire life as long as you continue to pay the premiums. It often comes with a cash value account, which is an investment-like savings feature, in addition to the standard death benefit.
When you transfer your permanent policy to a charity, the charity becomes the owner and the beneficiary. The charity can then surrender the policy and take its cash value, or keep the policy active and continue to grow the cash value.
If the policy stays active, you can continue to pay the premiums by paying them to the charity. Both these premiums and the policy are deductible on your income taxes. It’s best to work with your accountant or financial advisor to ensure you’re aware of all of the tax details.
It’s possible to use your life insurance policy to support both your loved ones and an organization you care about. If you want to reserve some or all of your policy’s death benefit for a charitable gift, ask a Policygenius agent what the next steps are.