Donate insurance for tax benefit

Our prime reason for purchasing life insurance is to protect our immediate family members from the devastating consequences of the death of an income earner.

Eliminating large debts and replacing lost income are the main reasons for life insurance coverage.

But we often overlook the fact that insurance can be used for more than one purpose. The same insurance policy can do double duty. This opportunity is largely missed.

Donate to charity
What do we mean by double duty? Let’s say you have a permanent life insurance policy ( this includes universal and whole life policy types) and there is a charity you would like to assist.

Let’s assume further that you either have no dependents that rely upon you for their financial well-being, or that these needs a already fully satisfied.

You can make a donation of the life insurance policy to the charity. The charity now becomes both the owner and the beneficiary of the policy.

The value of your donation for tax purposes will be the sum of the policy’s CSV (cash surrender value), plus any accumulated interest and dividends that are also assigned, less any policy loans outstanding.

Payments also deductible
If you continue to make the premium payments on the policy, these payments will also be considered charitable donations. These are available to you as a tax credit.

Remember that this does not apply to term policies.

The key issue here is that the charity become the owner of the policy. If you were simply to make the charity the beneficiary under the life insurance policy, the tax benefits would not be available to you.

As always, there are more and less effective ways to accomplish a task. In this case, a small amount of forethought and a little creativity can produce significantly greater benefits, both now and in the future.