How To Donate Your Life Insurance Policy (2024)

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The best life insurance providers offer four types of donatable life insurance policies: term life insurance, whole life insurance, universal life insurance and variable life insurance. However, some types of life insurance policies may be a better choice to donate than others.

Term Life Insurance

Term life insurance lasts for a set period of time, typically between 10 and 30 years. If your life insurance policy ends and you pass away before a term renewal, then your charity of choice will not get a donation. Although you can donate a term life insurance policy, it may not be the best choice because it only lasts the life of the policy.

Whole Life Insurance

Unlike term life insurance which has a set end date, whole life insurance — also known as permanent life insurance — lasts the entirety of a policyholder’s life. As long as you pay your monthly premiums, your life insurance policy will remain intact and be donated to the charity of your choice after you pass.

Universal Life Insurance

Universal life insurance is one of the most flexible life insurance options because it allows you to change the cost of your monthly premiums and your death benefit amount. As a type of whole life insurance, universal life insurance policies are ideal for donations as they will remain in place as long as you pay your premiums each month.

Variable Life Insurance

Variable life insurance is a type of permanent life insurance plan that allows you to invest in your policy. With this type of life insurance, you have the opportunity to make money. If your investments perform well, you can take money out of your life insurance policy to pay for expenses or make an early donation. However, this also means variable life insurance plans make riskier donations, as their value will rise and fall with the stock market.

You can name nearly any charity or organization as the beneficiary of your life insurance plan. You will, however, want to make sure your charity of choice accepts life insurance donations. And if you’re interested in tax benefits, organizations that are tax-exempt under section 501(c)3 are likely your best bet.

Educational Institutions

One of the best ways to support your alma mater is to donate your whole life insurance policy. Educational institutions, such as colleges and universities, can accept life insurance donations if you choose them as the beneficiary of your plan.

Religious Organizations

Religious organizations like the National Christian Foundation accept whole, universal and variable life insurance plans, but you may also choose to donate your policy to a local church or organization.

Health and Disease Research Charities

Medical research has the power to help people who are sick, which is just one reason why you may decide to donate to it upon your death. Health and disease research charities, such as St. Jude’s Children’s Hospital or the American Heart Association, accept life insurance and other types of donations to further their research and find cures for terminal illnesses.

Any 501(c)3 NonProfit

Organizations that are tax-exempt under section 501(c)3 of the Internal Revenue Code — commonly referred to as charitable organizations — can receive tax-deductible contributions. This means you can donate to these organizations and potentially claim the donation as a tax deduction on your tax return.

The most common way to donate your life insurance is to name the charity as your policy’s beneficiary, but you may also decide to transfer your policy’s ownership or gift dividends instead of the entire death benefit. However you decide to donate, it is important to carefully consider the implications and potential tax benefits associated with your choice.

Some insurance companies require you to prove you have donated to a charity in the past before you can name them as a beneficiary, while others have fewer requirements. There is a relatively simple process to donate your life insurance policy, but you can follow these steps to ensure that donating your policy goes smoothly.

Contact the Charity

First, it can help to contact the charity you plan to donate to and ask how they prefer to receive life insurance donations. For instance, some charities may only accept whole life insurance plans or prefer to be named the beneficiary instead of taking ownership of the plan. By working directly with your charity of choice, you can better guarantee the organization will benefit from your donation.

When you contact the charity, ask about their donation process, fill out change of ownership forms and get access to any paperwork that needs to be filled out. If you plan to claim your donations on your tax return, you’ll also need to request the proper tax documentation. This will ensure that your policy is tax deductible and you don’t run into trouble with the IRS.

Donating Your Life Insurance Policy

There is more than one way to donate your life insurance policy to charity, and each method has its pros and cons. Many people choose to name the charity as a beneficiary because it’s the most flexible, but you may also decide to completely transfer your policy’s ownership or donate dividends gained from your life insurance policy.

• Name the charity as your beneficiary: Naming a charity as your beneficiary is simple if you already have a life insurance policy — all you need is a Tax ID number for the organization you choose. If you name a charity as the beneficiary of your policy, the charity will get a payout upon your death. This method is a popular choice because you can name more than one person or charity as a beneficiary, and the percentage of the death benefit that goes to each party is up to you.

• Transfer your policy’s ownership: If you want to make an immediate donation, you can transfer complete ownership of your policy to the charity. The benefit of this method is the charity can name itself as the beneficiary and even cash out the policy before your passing. You’ll still have to make monthly payments on the policy, but the funds you supply can be used right away.

• Gift dividends: If you prefer to keep ownership of the policy and have a variable life insurance policy, you can donate the dividends you earn from your policy to charity. By donating dividends, you’ll still get tax benefits and can continuously donate funds to the cause of your choice.

Tax Implications

As with any financial decision, it is best to consult your legal and financial advisors to ensure the gift of your life insurance policy goes smoothly. They can help you determine the gifting strategy best suited to your financial situation and ensure your gift is accounted for come tax season.

Donating your life insurance policy to a charitable organization is a way to leave behind a positive impact on your community. Yet, life insurance donations also come with other benefits, particularly when it comes to taxes. From tax deductions to lowered estate taxes, a life insurance donation can have a positive impact on your taxable income.

Tax Benefits

By giving the gift of life insurance to a non-profit 501(c)3 company, you can claim an immediate tax deduction equal to the value of your policy. This, in turn, reduces your taxable income and can lower your tax burden for that year.

Supporting a Cause

If you want to leave a charitable legacy but do not have the financial means to make a large contribution, you can instead donate your life insurance policy. Instead of donating a lump sum, you just need to pay your monthly premium and then upon your death, the charity of your choice will receive the policy’s death benefit.

Avoid Capital Gains Taxes

If your family’s financial future is stable, then donating your life insurance plan can protect your assets. You can also include your life insurance policy in your taxable estate, which means it is subject to estate taxes. But according to Alec Kellzi, a certified public accountant in California, you can lower your estate taxes “by designating a charitable organization as the beneficiary.” This will “consequently lower estate taxes” and avoid capital gains taxes.

Donating your life insurance policy offers a way to support a charity of your choosing upon your death. Not only does donating your life insurance policy allow you to increase the amount you’re able to donate, but it also provides you with tax benefits and can give you access to cash that isn’t part of your taxable income.

While there are general steps you can take to donate your life insurance policy to a charity, requirements may vary depending on the type of policy you have and which charity you choose to donate to. We recommend speaking with a personal finance or tax advisor to learn more about the best option for your situation.