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Business Life

Charitable Giving with Life Insurance

Charitable Giving with Life Insurance

A donor can make a sizable gift to his or her favorite charity by the donor allowing the charity to own a life insurance policy on their life.

Here is how it works:

  1. A charity makes an application for life insurance on your life making itself the beneficiary.
  2. The donor must consent in writing for the life insurance application. In some states, the charity must be an irrevocable beneficiary (See specific state laws.)
  3. The donor donates to the charity in amounts equal to or greater then premium payments.
  4. The charity makes the premium payments for the life insurance.
  5. The donor receives a charitable income tax deduction.
  6. At the owner’s death, the charity gets a tax-free payment from the insurance company.
  7. There is no estate or federal tax consequences for the donor’s estate.



· The donor must show no aspect of policy ownership, having no control over the policy. Adverse tax consequences could result if the donor has an event of ownership in the policy.

· Every state, not including Vermont and Wisconsin has laws allowing charities to own life insurance on the lives of their donors. These state laws can be different in different states so check state law to understand these differences, before submitting an application.

· When a charity owns the policy they have the right to terminate the policy, borrow cash from the policy or not pay premiums. Donors have no say in these matters other then to stop donations to the charity.


To the charity

· The Charity receives quick payment at the donor’s death

· In a cash-value policy [1], the cash value in the policy can be used for unexpected needs.

· In a cash-value policy, the charity could use the non-forfeiture to preserve the death benefit if donations stop.

To the donor:

  • A substantial gift can be made with small premium payments over time.
  • A substantial gift can be made without hurting the donor’s financial situation.
  • The donor’s gift is kept a safe distance from disgruntled relatives, who might contest the gift to the charity, since the contract is between the charity and the insurance company. No funds flow form the donor’s estate to the charity.


MyTerm.com presents this information to help you understand the ideas presented. They may not work in your particular circumstances. State and Federal laws may change. The material here is not intended help you avoid IRS penalties, you should seek independent tax advice from legal advisors based on your circumstances.