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Charitable Gift Life Insurance Definition
Charitable gift life insurance is a way of purchasing a life insurance policy and naming a charity as the policy owner or beneficiary. This allows donors to make a substantial future gift to a charity. Donors then arrange to pay the life insurance premiums other than giving cash gifts.
A Little More on What is Charitable Gift Life Insurance
Charitable gift life insurance entails that the donor does not get a tax deduction for the premiums paid as the amount of death benefit paid will be deducted for estate tax purposes. The insurance contract strongly emphasizes the intention of the charitable gift life insurance so as to resolve any dispute that may arise.
Benefits of Charitable Gift Life Insurance
Though naming a charity provides the charity with the death benefits proceeds from a policy, it does not provide the charity the income tax advantages that come with gifting a policy. However, it reduces the donor’s estate by the death benefit amount. Donors who are uncertain about sharing or who to share their assets to can name a charity as an alterable beneficiary. In cases where their financial capacities change, this offers them an opportunity to effect this change in their future plan.
Naming a charity as the beneficiary of a policy does not hinder the privilege owned by the policyholder to effect changes in the policy such as borrowing or withdrawing. This will reduce the value of the future gift. Other privileges include changing the beneficiary of the policy or cashing out. Policyholders can even decide to have two beneficiaries benefit from the policy.
Furthermore, naming a charity as a beneficiary ensures the privacy of the transaction, it allows donors to keep their gifting secret from their families. Assets transfer from an insurance contract is unquestionable as contesting the estate settlement is not possible. The donor is entitled to change their beneficiary before their demise. Also, if the donor chooses to stop paying the premiums, the charity can choose to continue the process or can allow the policy to be discontinued.