Charitable Life Insurance trust: Donating Life Insurance Policy to Charity
Charitable Life Insurance trust: Most people think to take a life insurance policy because they want to be sure of their family after death. In this tough economy, it is now a time for a new theory of giving. A life insurance policy can be a great source of charity. Here we will discuss donating life insurance to charity in Canada and any other place.
First, let’s know what life insurance is. It is a policy that allows tax-free and death benefit plans that are transferred to the beneficiaries. Secondly, the charity amount is provided as a tax deduction in the gross estate. Any person may buy a fresh policy in the name of charity or may assign her own policy for charity purposes. The question may arise why should we transfer while you were alive. It is because the person gets benefits in the form of an income tax deduction in the year of transfer.
Let’s discuss on charity-owned life insurance program. To make it easy to understand how the policy works, one hypothetical example is here: Suppose, there is 58 years old woman who has a $10 million estate and she wants to give a big donation to charity.
She could directly donate $5 million or she could buy a $10 million life insurance policy with an increasing death benefit at a cost of $718,000 per year for seven years. If the value of the life insurance policy grows at 7.5% over 30 years, a charity would receive almost $27 million upon her death.
According to the senior financial planner of MetLife Financial Group, A policy gift can be very powerful and allow ordinary people to make larger contributions. The charity receives the insurance proceeds when a person dies and when he makes annual donations of the premium, he gets a tax deduction for the current year.
There should be some care needed for planning. Make sure that plan meets current financial needs and provides proper coverage for beneficiaries and also the charity. Everyone is not qualified for the amount of life insurance that divides between both nears and charity. The qualification process includes medical as well as financial underwriting.
One important thing is to choose the right life insurance plan. Term insurance ends as its term is over. If a donor lives after the term, the charity beneficiary receives nothing at all. Whole life insurance policies are expensive but cover more benefits. Before purchasing life insurance for charity, check the organization well because the transfer is irrevocable after the owner transfers the policy to another (for charity). Read more articles on rozyjos.
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- Gifting/donating life insurance to charity
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- Charitable life insurance program/ Make Charitable Donations
- Accounting for donated life insurance policy/ charitable trust
- Naming a charity as beneficiary of life insurance