Life Insurance Policy with Cash Value
Life insurance is a valuable gift option that is often overlooked. Life insurance is frequently purchased as part of an overall financial or estate plan. As circumstances in life change, the need for insurance may diminish. A gift of a paid-up policy can provide tremendous benefits to the Church or one of its institutions.
The typical donor:
- Has outgrown the need for the insurance protection.
- Has paid into the policy for several years.
- Wants to ensure completion of a significant gift.
- Uses the gift of insurance as part of an overall financial plan.
Gift features and benefits:
- Immediate income tax deduction available to 50 percent of adjusted gross income
- Flexibility in completing various giving plans
How Do I Make a Gift of a Life Insurance Policy with Cash Value?
To transfer ownership of an existing policy to the Church or one of its institutions, obtain a "change of ownership and beneficiary" form from your agent or insurance company. You should complete those portions of the form pertaining to "change of ownership" and "beneficiary designation." The correct name of the Church or one of its institutions must be used. The appropriate form and a copy of the policy should then be transferred to Philanthropies in behalf of the Church or one of its institutions. The receiving institution must sign the "change of ownership" form as the new owner. If the policy is not "paid up," future premiums donated to the Church or one of its institutions are treated as cash gifts.
If you are considering a new policy as a gift to the Church or one of its institutions, contact an Philanthropies professional. Each state has different requirements regarding "insurable interests" associated with the right of the charitable recipient to purchase a policy on your life. Some states require that you initiate the policy with a minimum premium payment before you can transfer the policy to the Church or one of its institutions.
How do I make a gift of Life Insurance with Cash Value using Gift Planning Tools?
A common use of life insurance is to create an “irrevocable life insurance trust” (ILIT) to use in conjunction with the creation of a Charitable Remainder Unitrust. Using this concept, an asset such as raw land is transferred to a charitable remainder trust, sold in the tax-free environment of the trust and reinvested. Income is paid to you, and you "gift" some portion of the income to an irrevocable insurance trust which is owned by your heirs. At your death, the unitrust corpus will go to the Church or one of its institutions and the life insurance in the insurance trust is available for your heirs free of estate and income tax. Charitable planning using these concepts should be undertaken only with the advice and counsel of your financial and legal professionals. Philanthropies’ professional staff will be happy to work with your advisors to help you achieve your charitable goals.
Other Facts You Should Know about a Gift of Life Insurance with Cash Value
Two forms of life insurance are typically donated: paid-up "whole life" and "universal life." A whole life policy usually has cash value that may be used for the immediate needs of the Church or one of its institutions. Universal life policies can usually be structured so that it will not require future premiums after a period of years.
The charitable income tax deduction for a partially paid-up policy is based on the "interpolated terminal reserve" (ITR) and not the policy's cash value. Use of the ITR for gift valuation purposes is an Internal Revenue Service regulatory requirement. The ITR value is an amount which reflects the daily current value of the policy and is slightly more than the cash surrender value (the amount the insured would receive) if the policy were cashed-in to the insurance company.