You buy life insurance to protect the people you care about, but what about the causes you care about? This is where added a charity beneficiary comes in to play.
Adding a beneficiary to a life insurance policy isn’t ideal for everyone, especially those who are constantly strapped for cash and need to keep their premiums low and are only focused on protecting their spouse or kids.
You may have a favorite nonprofit or two that you frequently give money to or feel strongly about. If so, putting down a charity as a beneficiary can be a thoughtful way of continuing to offer them support after you’re gone.
What I’m outlining is in no way an all-encompassing, comprehensive, one-size-fits-all approach. However, it is a sound strategy for naming a charity as your beneficiary.
Marking A Charity Beneficiary On Your Life Insurance
Some individuals name charities as their beneficiaries with tax season in mind. In some cases, you can get deductions for making charitable donations via a life insurance policy. But in many cases, you won’t.
Why? Because the gift doesn’t come around until you die, and you could stop paying premiums.
If tax deductions are important to you, you may want to speak with a financial advisor or a life insurance agent before diving in to make sure you understand the tax situation.
It’s also worth noting that in most cases, if you are going to use your life insurance to help out a charity, you’ll want to have a permanent life insurance policy and not term life insurance.
After all, the whole idea behind buying term life insurance is looking out for your loved ones who would struggle without your financial help.
If you take out, say, a 20 or 30-year policy and outlive it, you can still rest assured that you made the right call to protect your family.
But if you spend a small fortune in premiums to make a payout for your charity and you outlive your policy, you may not be left with the same warm feeling.
That’s why many individuals decide to make donations equivalent to the amount they would have made in premiums to their favorite charity.
In any case, if you are interested in giving money to a nonprofit via your life insurance, here are the roads most often traveled.
How to Give a Life Insurance Policy to a Charity Beneficiary
Start with protecting your family.
If you have a family who depends on your income, children to support through college and debt that could be passed on to a loved one, you need a life insurance policy.
Securing the means to protect your family financially in the wake of your death is the first crucial step to take when it comes to life insurance. Before you even begin to consider supporting your favorite charity, look at the financial state your loved ones would be left in if you passed away.
Take out a separate insurance policy for the charity.
What if you’re interested in giving back to your favorite charity with a life insurance policy? But you already have one in place for your family?
First, get an affordable term life insurance policy in place for your family. You can then look to giving back to charity with life insurance.
Your best option may be to take out a whole life policy to support the charity of your choice.
Then you can leave a legacy in the form of a windfall of cash to your favorite cause. To do so, you simply need to leave the life insurance company as the beneficiary.
Maximize Your giving.
Perhaps your goal is to leave a larger amount to the charity than you could on the spot. If so, a life insurance policy can provide you with a less expensive way to give a lot of money to a good cause.
For instance, if you want to give $100,000 to a charity, you aren’t going to pay $100,000 in premiums. You’re going to leave a charity a hundred grand but pay far, far less.
The key is to ensure that you take out a policy you can afford. Whole life insurance is far more expensive than term life. So you can expect to pay higher premiums on a sizeable policy
Protecting your family with your current policy is critical. So make sure that the added expenses you’ll be paying for the charity’s policy won’t hinder your ability to pay premiums on your family’s coverage.
Get a charitable giving rider.
There is an alternative to purchasing a second life insurance policy to leave to your favorite charity. You could add a charitable giving rider to your existing policy.
Life insurance riders are essentially add-ons to your policy that extend coverage and provide for additional benefits.
Usually, charitable giving riders are only allowed for policies of over $1 million. And oftentimes, it won’t raise your premium or reduce your family’s payout.
Just make sure that the charity is a qualified 501(c)3 charity. 501(c)3 is the IRS’ designation for verified nonprofit organizations.
Giving to an established 501(c)3 helps the government and your life insurance provider ensure that you aren’t actually giving your money to a guy who decided to start a charity so he could pay for his mansion.
Take the time to look into your life insurance company’s riders. See if it may be possible to tack one on to your life insurance.
Your charity beneficiary can take out a policy on you.
Another option far fewer people are aware of is asking your favorite charity to take a life insurance policy out on you.
Here’s how it works. Generally, when a charity purchases a life insurance policy for an individual, you pay the premiums every year. The premiums count as a tax-deductible gift to the charity.
While this option may sound like the most ideal, it is rarely enacted. A lot of charities shy away from the prospect of managing other people’s life insurance policies. And with good reason.
Entering into a life insurance agreement with an individual is a long-term commitment. Even if you are the person paying the premiums. You may find more success with a request of this nature at a larger nonprofit. They would have more bandwidth to manage such a large financial transaction.
You probably won’t find a ton of organizations willing to partner with you in purchasing a life insurance policy. But it never hurts to call and ask.
Life insurance provides you with an excellent way to protect your family in light of an unexpected tragedy. But its impacts can reach far further than your household.
You can also give back to people in need, leaving a legacy in your wake. Whether you’re leaving behind a significant amount of money, like $1 million, or a smaller one, like $100,000, your monthly premiums can make a major difference.
Whether you’re looking to leave a charitable legacy or just protect your family, we can help you get quick quotes on the most affordable life insurance policies and providers for your unique circumstances.
Call us today for a quote at 1-800-712-8519.