In today’s uncertain economy, many donors are looking for ways to support the causes they care about without putting a strain on their day-to-day finances or giving away assets they may need in the future. A life insurance policy offers a comfortable but often overlooked opportunity for donors to leave a lasting legacy—potentially with a much larger gift than might have been possible with cash. Now is a great time to remind donors of this flexible option.
Examining the many ways to give life insurance
One of the most flexible aspects of a gift of life insurance is the variety of gift strategies available to donors:
1. A charitable beneficiary designation. This option, of course, requires no immediate expenditure and can be changed if the donor’s circumstances change. Naming your organization as a full or partial beneficiary (primary, secondary, or contingent) is an easy, appealing way to make a future gift.
2. Gift of a paid-up policy. Some supporters are likely holding policies they no longer need for the original protection purpose. A paid-up life insurance policy can make an excellent gift. It’s straightforward, qualifies for a charitable income tax deduction (equal to the lesser of the policy’s replacement value or the donor’s basis in the policy), and allows the donor to make an immediate impact on your work.
3. Gift of a policy that is not paid up. This impactful gift option is just a bit more complicated than a gift of a paid-up policy. If your organization allows, donors can contribute a new or existing policy, then make tax-deductible annual gifts to your organization to cover the premiums. Alternatively, your organization might choose to surrender the gifted policy and use the funds to further your work today.
4. Transferring a policy into a charitable remainder trust (CRT). Donors seeking both income and impact might consider transferring a policy into a CRT. The trust is funded with an amount equal to the policy’s cash value (not the death benefit), and the donor qualifies for an income tax deduction based on the charitable remainder value. The trustee then provides the donor and/or other named beneficiaries with an income for life (or for a period of years up to 20) and directs all assets remaining at the end of the trust term to your organization.
5. Donating a life insurance policy to a donor-advised fund (DAF). If your organization does not accept gifts of life insurance, donors can consider contributing the policy to a DAF, which would likely surrender it for the cash value. The donor may receive an immediate income tax deduction and can recommend grants to your organization at any time in the future.
Navigating sensitive conversations about gifts of life insurance
You may feel uncertain about the best way to have a natural, meaningful conversation about gifts of life insurance. After all, it can be a delicate matter to avoid death language, and combining life insurance with legacy giving makes it a doubly sensitive topic. Remind yourself that you already have all the tools required!
• Focus on listening. Understand where the donor is in their planning journey, and keep the conversation rooted in values and impact.
• Use open-ended questions. This will help uncover whether life insurance might be a good fit for their situation:
º “Do you have an old life insurance policy that you no longer need?”
º “Did you know you could create a future charitable gift using life insurance—with no impact on your current cash flow?”
º “Are you interested in a gift that can be changed if your circumstances change?”
º “If you could turn a modest annual premium into a tax deduction and future income stream for retirement, would you be interested in learning more?”
• Gently explore the options. When the conversation naturally moves toward legacy planning, provide information and guidance that emphasizes the specific difference the gift can make for those you serve, the creation of a meaningful legacy, and the tax and planning benefits to the donor.
Things to Keep in Mind
Gifts of life insurance are generally straightforward, but here are a few best practices that can help ensure a smooth process for both you and your donors:
• Review your gift acceptance policy to confirm it includes language around life insurance gifts and outlines how they will be handled.
• Encourage donors to consult their advisors to make sure the gift aligns with their financial, tax, and estate planning goals.
• Ask donors to notify you of the gift. Life insurance companies don’t always proactively contact charitable beneficiaries, so direct communication is essential. This also helps with your future planning and gives you the opportunity to thank the donor.
• Supply your organization’s full legal name for donors to use on all paperwork.
Life insurance can be a powerful and flexible way for donors to support your mission—often with assets they no longer need. With the right approach and a few thoughtful questions, you can help them turn a practical financial tool into a meaningful legacy.
