In 2020, Americans gave away more than $471.44 billion.1 The great thing about financial gifts is that they can be an ideal way to bring about positive changes to people and organizations. But did you know that by buying a life insurance policy and naming a charity as your beneficiary you can continue to support the causes that you care about even after you're gone?
According to the National Philanthropic Trust, it is estimated that between $6.6 trillion and $27.4 trillion in charitable bequests will be made between 1998-2052.2 The fact is, many people are choosing to buy life insurance specifically to make charitable donations to causes that they care about. If this is something you've been thinking about, then there are a few things you should consider before making specific arrangements.
The type of policy
There are certain policies that lend themselves better to charitable giving. For example, a term life policy may not be the ideal choice, only because it can potentially expire before you die. Permanent policies such as whole life or universal life don't carry an expiration date, as long as premiums are paid, and could better ensure a payout is made to your charity.
The tax deductible benefit for leaving your life insurance to a charity is equal to the policy's cash value, plus any premiums paid on the policy after the gift is made. However, to take advantage of the income tax benefits, you would need to name your charity as both the owner and the beneficiary.
Who receives what and how much
The process is easy; you may simply name the charity as beneficiary when you buy your policy. Even if you already have an existing policy, typically all you need to do to change your beneficiary is to send a written request to your life insurance company asking them to re-name your beneficiary to reflect the charity that you wish to receive the proceeds.
What if you don't want to leave your entire policy to a charity? When you name a charity as a beneficiary, you can specifically designate how much your want to give. Some life insurance carriers even provide the option of adding a charitable-giving life insurance rider. This rider can be attached to policies with high face values typically allowering up to 1-2% of the policy's final payout to go directly to the organization of your choice.
Privacy and security
Naming a charity as a beneficiary on your life insurance policy has benefits over simply leaving money to an organization in your will. For example, do you wish to keep your gifting intentions hidden from your family or other individuals? Naming a charity as a beneficiary ensures that your transaction remains private.
Gifting a life insurance policy or naming a charity as beneficiary, you can provide the charity of your choice with the financial resources to ensure that their good work will continue.