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Life Insurance Policies

Many people are surprised to learn that their life insurance policies can become a charitable gift. Life insurance is usually purchased to protect the family from financial loss due to the death and loss of income of one or more family members. Normally, the need for life insurance protection lessens as an individual grows older. Children are grown, self-supporting, and through college; the mortgage has been paid; and an estate of other assets has been acquired. The insurance has served its original purposes, and can become a gift to the Community Foundation. The donor receives an immediate tax deduction (usually equal to the cash surrender value).

Outright Gifts
If the donor decides to relinquish ownership of the policy by assigning all rights, titles, and interest in the policy to the Community Foundation, the donor may be eligible for a charitable income tax deduction for the present value or future premium payments on the policy. If ownership of the policy is donated to the Community Foundation, even if ownership is retained by the donor, any proceeds received by the Community Foundation will be deductible by the insured estate as a charitable contribution, thus reducing the estate tax.

Donors can also contribute insurance even though the policy is not fully paid up. The donor can name the Community Foundation the beneficiary, continue to maintain the policy, and receive a charitable tax deduction for premiums paid to keep the policy in force.

Deferred Gifts
Donors can contribute life insurance policies to fund a life income trust. These life income trusts (i.e. charitable remainder annuity trusts or charitable remainder uni-trusts) are advantageous giving arrangements for many donors. A donor can make an irrevocable gift of an insurance policy's present value, yet reserve income for the donor or other beneficiaries for life.