Life Insurance: Cost Effective Giving

Perhaps one of the most often overlooked assets to consider when making a gift to a charitable organization is life insurance. Many individuals hold policies that are no longer needed. They have been paid up for years, and the cash value continues to increase. As circumstances change the death benefit may have become relatively insignificant. An insurance policy can make an excellent gift to an organization such as Habitat for Humanity Inland Valley (HFHIV) and provide significant benefits to the donor.

The Benefits

 Making an outright gift of an existing life insurance policy to a charity entitles the donor to an income tax deduction. Generally, the value of the deduction is equal to the cost basis of the policy. If the policy is paid in full the deduction may be equal to the replacement cost of an identical policy.  Transferring ownership of a life insurance policy may create additional estate tax savings.

When an existing life insurance policy is transferred to a charitable organization, the cash value of the policy is not recognized as taxable income. Any outstanding loans made against the policy could be treated as taxable income. Each situation should be reviewed carefully prior to transfer ownership to the charity.

Transferring Ownership

 The owner of an existing life insurance policy should contact the issuing insurance company and secure the proper forms to effect the change of ownership. The donor must irrevocably transfer all incidents of ownership to the charity and name the charity as the designated beneficiary of the policy.

Converting an Unneeded Policy into Income

In some instances a donor may not want to make an outright gift of life insurance but prefer to receive a lifetime income exchange for the gift. Charitable income arrangements such as Charitable Remainder Trusts and Charitable Gift Annuities can provide significant economic benefits and allow donors to convert a non-income producing asset into an income stream.

New Policies

One of the most cost effective ways to make a gift to HFHIV is through the purchase of a new life insurance policy. Purchasing a new policy will entitle the donor to an income tax deduction for the cost of the premium payment and when the charity is named as both the owner and the beneficiary of the policy. Life insurance makes it possible for donors to contribute a larger gift than they may think is possible.

 Consider Life Insurance

 Life insurance can be a most viable asset to consider when planning an outright gift or a gift that can return income to you. Talk with your advisors and our gift planning director to help maximize the best gift planning opportunities available to you.

For more information about how you can benefit from this is opportunity, please contact Eric Bunge, Director of Special Gifts, at (951) 296-3362 ext 208, or email Eric@habitativ.org

The information provided here is for illustrative purposes only and is not intended as legal advice. For legal or tax advise Habitat for Humanity Inland Valley recommends contacting your legal or tax advisor.