CCIM Feature

Charitable Donations of Life Insurance

Life insurance is often overlooked as a gifting option when individuals are considering gifts to charities, but it can be an effective way to provide a charity with funds for future work. Thus, the gift of a life insurance policy may be something to consider.

The tax benefits to the donor will depend on how the gift is structured. The gift will normally be arranged so that either the donor owns the policy and names a charity as beneficiary, or the charity owns the policy and pays premiums by way of cash gifts made by the donor.

If the donor retains ownership of the life insurance policy and names a charity as the beneficiary, the donor will not receive a current charitable income tax deduction and the death benefit proceeds will be included in the estate for estate tax purposes. This is due to the retention of ownership that allows the donor to change the beneficiary or leave only a portion of the life insurance benefit to a charity. If the policy is in the form of a cash value life insurance policy, this also means that the donor will still have access to the cash value during his or her lifetime. Upon death, although the proceeds are included in the gross estate, the proceeds payable to the charity should qualify for a charitable estate tax deduction.

If the donor wants to receive an immediate charitable income tax deduction for life insurance premium amounts, then the charity must be the owner and beneficiary of the life insurance policy. The charity may choose to maintain or liquidate the policy. If the charity chooses to maintain it, typically a donor will donate cash directly to the charity so the charity pays the life insurance premiums. At the donor’s death, the charity generally receives the life insurance death benefit proceeds income tax-free. In addition to a charitable deduction for premiums being paid, a donor may get a charitable deduction for the policy itself. This is generally the lesser of the policy’s fair market value or the donor’s basis, which is the accumulated premiums paid by the donor to the date of transfer minus any dividends and withdrawals paid to the donor. The standard IRS annual limitation on charitable income tax deductions apply as do some state laws.

If a donor has an existing life insurance policy that is no longer needed, the donor may donate the policy to a charity. He or she may receive a charitable income tax deduction for the donation of the life insurance up to certain limits. To do this, all rights in the policy must be assigned to the charity and the policy must be delivered to the charity. There is usually a change of ownership and beneficiary form from the insurance company that must be completed. And, the receiving charity must sign the change of ownership form as the new owner of the policy. If additional life insurance premiums are needed, then the donor may make continuous annual donations to the charity for the additional premium payments. These additional donations may be income tax deductible up to certain limits. At the donor’s death, the charity should receive the life insurance death benefit income tax-free.

As is evident, the use of life insurance may be an excellent way to donate to a charity. It could result in a substantial gift to a charity at a relatively small cost and may also provide the donor with charitable income tax deductions and charitable estate tax deductions.

The rules on charitable deductions to qualified charities require review at the time a charitable donation is contemplated. These rules may change or be impacted by amended regulations, current tax court decisions and case law.

Mary Stark Hood, JD, CFP, is president of the Hood Group, which provides consulting services to business organizations and foundations. She currently serves as a consultant to the CCIM Foundation’s Real Estate Gifting Realized Program. Contact her at Learn more about the Foundation’s gifting program at


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