Charitable Life Insurance – Is It For Me? | Experior Financial Blog
Charitable Life Insurance: Is it for me?

Charitable Life Insurance - What Is It and How It Works?

Are you looking for ways to make charitable donations to your favourite charity? Canadians are very generous people and so it is not uncommon for many of us to want to leave money to our favourite charities upon our death. There are ways to do this and in this article we will discuss using a Life Insurance policy for the benefit of donating to the charity of your choice.

What is Charitable Giving Life Insurance?

Charitable Life Insurance is a Life Insurance policy that is dedicated to leaving funds to benefit your preferred charity. Often people have one charity or more that they feel special affection for to the point where they would like to leave funds for that charity at the time of their death. Using a Life Insurance policy is not an uncommon way of doing so. In addition, having the ability to receive tax relief is a major reason estate planning uses these vehicles.

How do I Leave Life Insurance to Charity?

When you choose your policy based on factors that suit your needs and budget you would name your charity as the policy’s beneficiary. This ensures that when you pass away the benefactor is the charity as the beneficiary you have chosen yourself.

Types of Life Insurance Policies That Can Be Donated

You can choose any plan of insurance including Term insurance but, Whole Life Policy, or any permanent Life Insurance policy is more appropriate as it is guaranteed to be in force when you pass away.. The most important detail is that you name your charity of choice as the beneficiary so you can make them the owner and beneficiary of the life insurance policy. There are some tax implications to doing this so speaking with a qualified Experior Associate will help to ensure you maximize your benefits.

What is Cash Surrender Value?

In the world of life insurance, the cash surrender value is basically the same as the cash value. It is an amount that you receive when you decide to return your policy to the insurance company or surrender it. Here “surrender” means to terminate the existing life insurance policy.

When you hold a permanent life insurance policy, you may accumulate cash value over time. A cash surrender value is the total amount of cash that can be withdrawn under the policy minus any applicable charges and fees.

The early surrender fee exists to discourage new life insurance policy holders from canceling their life insurance policies and to make sure they pay premiums. It’s also meant to deter people from withdrawing money soon after they have invested in the policy. In some cases, surrender fees can be as much as 100% of the cash value. However, your fee will change over time. Often, the fee will go to zero after the policy has been in place for ten to fifteen years.

Cash value comes in many forms. Some policies have lifetime guarantees, others invest the money and cash value is dependent on the success of this investment. You may have a choice in the type of investment in universal life insurance plans.

The factors that influence your cash value are active years and total life insurance premiums paid to date. If you understand the contract between you and your insurer, you can learn how your policy’s cash value will grow over time.

For that reason, it’s important to know that the amount your policy will pay out when you die is not necessarily equal to the cash surrender value. Reducing or withdrawing the cash value of your life insurance policy will likely affect the death benefit payout.

Can a Charity Hold Life Insurance?

The donor can retire an existing life insurance policy and transfer ownership of the policy to a charity. Because the charity is the beneficiary, this arrangement enables the charity to hold an existing life insurance policy.

What is the Advantage of Naming a Charitable Organization as a Beneficiary of a Life Insurance Policy?

Flexibility

For donors who want to give to multiple charities, naming a foundation as the beneficiary of a life insurance policy makes it easier to contribute to multiple charitable organizations.

A donor often can split the proceeds of a policy between charitable and non-charitable beneficiaries. People can trust that their donor’s estate plan, whatever the giving intentions, is executed in accordance with their wishes.

Opportunity to Give a Larger Gift

Many donors are unaware that they can give a substantially larger charitable donation through life insurance than through cash donations. The reason for this is because their premiums will purchase a larger ultimate benefit over time than most donors can afford.

When a charitable foundation owns life insurance, all or part of the premiums are eligible for a donation receipt and tax credits. This allows donors to give more to the charities they wish to support, which is especially helpful for donors on a budget.

3 Main Reasons to Use Your Life Insurance to Donate to Charity

  • There’s an insurability advantage – If you are younger and healthy a small insurance premium can purchase a large death benefit.
  • Peace of mind knowing that you’ve done all you could to leave a legacy for a charity that you love.
    1.  You have ownership of the life insurance policy and you can name your charity as the beneficiary. In this option you own the policy and can update and make changes as you like. There is a death benefit advantage that qualifies you on your final tax return for a tax credit. You can name the charity through a will or directly as beneficiaries on the policy.Flexibility – Charities can benefit from a life insurance policy in two different ways;
    2. Transferring ownership of the policy is possible if you so choose. In this scenario the Charity can be the owner of the policy so they can update it and make changes as they need. On your final tax return the death benefit does qualify for a tax credit or you have the choice that  premiums paid are a tax credit for you.
 

What Amount Is A Policy Owner Able To Deduct When He Or She Makes A Charitable Gift Of A Life Insurance Policy?

If you donate a life insurance policy to a qualified charity, you can deduct part of the value of the donation on your income taxes. This can be up to 50% of your gross income. If you make charitable donations, you may also be able to take a tax deduction for any premiums that are still owed on your policy.

How to Donate a Life Insurance Policy?

If you are interested in a Charitable Life insurance policy so that you can donate to your favourite charity, speak to an Experior Financial Group Associate today. Our expert associates will review your financial situation, preferences and help you set up a policy in the best way possible. There’s alot to consider for your financial future with tax and estate planning. An Experior associate can also assist you with setting up your will. 

Experior Financial Group has been assisting clients with personal finance, insurances, investing and final expenses, estate planning and more since 2014. Find out more about having one of our Associates work with you to complete an Expert Financial Analysis utilizing our State of the Art proprietary analytical software. We help you put all of your financial resources to work for you and help you create a lasting legacy.

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