If you are planning to leave a good amount of money to some charity after you pass away, you can donate the proceeds of life insurance that you can set up for the purpose. To go about setting up your life insurance policy for the purpose, there are three available means. These are:
- You can name your favourite charity (church, organization, etc) as the beneficiary of your life insurance policy, and after you are gone, the death benefit automatically goes to the specified organization. However, you must realize that the premiums you pay will not provide you with “charitable income tax deduction”.
- You can donate your life insurance policy to the charitable organization of your choice. The method also allows you to ask for a tax deduction on income taxes. To make sure that the premiums are paid, you can provide the charity with a deductible cash gift.
- Provide the charity to buy your life insurance policy by making donation.
Typically, this is done by making the charity as beneficiary or donating it with a permanent life insurance policy, as cash value is built over the life period of the policy. You can consult an attorney or tax advisor to get the best advice on setting up a charitable donation. It also needs mentioning here that many charities are not always interested in life insurance policy donation due to the nature of being around until death. They find an immediate cash donation more appealing.
All those who are having charitable contribution tax deduction would do well to keep few things in mind:
- Make sure that the charity is a non-profit organization - 501(c)(3) certification.
- Make sure that the charitable organization accepts life insurance as gift.
- You have to mention that the charity is the owner and beneficiary of your policy for availing tax deduction.
- It is useless to consider term life policies for donation to charities as it is worthless if the term expires before you pass away; permanent life insurance are more appealing to charities as they build cash value over time.
- If a term policy is donated, you get deduction of cost of premiums; if whole life policy is donated, you get deduction of both the cash value and premiums.