How to Make Gifts of Life Insurance to a Nonprofit Organization
Whole life insurance policies – those that are purchased for a lifetime of protection, as opposed to term life insurance which has a limited period of time until the policy matures, can be given as a deferred gift to a nonprofit agency or organization. Just exactly how to do this can be confusing to the average devoted donor. Read on to find out more about how to make a gift of life insurance:
When an individual purchases a life insurance polity – they normally have a value of how much they will pay out upon the death of the individual ($10,000, $50,000, etc.). A person then makes payments for a certain amount of time according to a schedule. When purchasing a policy, the individual assigns ownership of the policy to a nonprofit agency, instead of an individual, as well as making the organization beneficiary of the policy.
An individual may be able to get a tax deduction for the premium payments. In some cases the individual will need to make a donation in the amount of the scheduled payment to the nonprofit and the nonprofit organization. A tax consultant and/or attorney should be consulted to make sure that things are done properly according to the laws in your state.
This may seem like a lot of paperwork and details for both the individual and the nonprofit organization. But, in fact, this is one intention that individuals can make substantial gifts to a common charity, and the charity can benefit from a large donation. Additionally, since the ownership of the life insurance policy has been assigned to the organization from the onset – it becomes an asset of the organization. As an asset, it can help the organization build its financial health, be used to secure loans and grants, and help construct stability.
For the donor, he or she can aid the organization both during his or her lifetime, and after death. This is one way that individuals (including younger donors) can create broad gifts that can really obtain a huge difference and contribution for an organization.
The one disadvantage is to the nonprofit organization. The individual may choose to, or be unable to make the scheduled payments. In this case, the organization can take over the payments (since the organization is the owner) or find another donor to do so in order to maintain the policy, or the organization may be able to cash in the policy for whatever its current cash value is to access some cash from the arrangement.
Again, both the individual and the organization should consult a specialist to make sure that all the bases are covered, unless they have experience in dealing with donations of life insurance policies. Laws change and it is vital to earn sure that everything is done thoroughly and legally.