While primarily used to leave inheritances to family members and loved ones, life insurance policies can also be used as donations to charities and non-profit organizations. This caveat of life insurance policies can be helpful both to the policyholder and to any potential recipients. But you can take a few different approaches to charitable giving with life insurance, and each will affect how your donation will be treated.
Gift policy dividends
If your life insurance policy pays out dividends, you or any policyholder could donate these dividends to a charitable organization of your choice. While this option provides the smallest payout, it is straightforward to donate without selecting the organization as a beneficiary or including a charitable giving rider in your policy.
Name the charity as a beneficiary.
It is possible to include an organization as your beneficiary in a life insurance policy. This method can mean a bigger payout for the organization and can often be one of the simplest forms of charitable giving you might find with a life insurance policy.
Another benefit of giving this way is that your life insurance policy will be deducted from your estate’s taxes. This means your other beneficiaries may receive larger payouts from the inheritance you left behind.
Donate the policy
Another method for giving through life insurance is simply donating the policy itself. With this option, charities receive the highest possible amount from the death benefit, and the donor can still deduct the policy from their estate taxes.
The donation will be equivalent to whatever premiums have been paid. This choice is also helpful for customers who own a policy that does not serve their needs anymore but still wishes to gain some value.
Use a charitable giving rider.
When you purchase life insurance, you also can purchase an additional feature to your coverage that will donate a portion of your policy. It’s up to you to decide how large that portion is, but no more action is needed once you have included the rider in your policy.
Riders cost no additional money to implement, so they’re another convenient and straightforward way to include charitable giving in your life insurance coverage.
The bottom line: give back with your life insurance.
Not only can you use your life insurance policy to help your loved ones, but you can also use it to provide for causes and organizations you value. While there is a small process involved in setting up donations through your life insurance policy, several options are available to give how and when you want to. Once you figure these options out, you’re free to give life insurance benefits to the charity of your choice, and you can rest easy knowing that your policy donations are safe and secure.
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