One advantage of opting for life insurance coverage is the ability to allocate funds to the beneficiaries of your choosing. While many individuals decide to name their spouse, children and other family members as their beneficiaries, this isn’t the only option. You may also use other strategies, including transferring ownership or making donations, to ensure a particular person, group or organization receives the death benefit from your policy.
If your loved ones no longer need the support of your policy if you were to pass away, or if you simply feel passionately about supporting a specific organization, you may decide to donate your policy to charity. This choice ensures your policy is distributed in a way that’s meaningful to you after your death. In this article, we’ll discuss the types of life insurance policies that can be donated and describe how to donate a life insurance policy to charity.
Types of Life Insurance Policies That Can be Donated to Charity
If you’re interested in donating your life insurance policy to charity, you have several coverage options since both permanent and term life insurance policies can be donated. However, it may make more sense to donate a permanent life insurance policy because there’s no risk of the policy expiring as long as the monthly premiums are paid.
This also gives more agency to the charitable organization as to how to use your funds. For example, if you choose to donate your policy before you pass away, the charity will have the option of surrendering the policy for cash value, selling it or taking out a life insurance loan against it.
How to Donate a Life Insurance Policy
When you’ve decided you want to donate your life insurance policy to charity, there are several approaches you can take, including:
Transfer ownership: If you want to gift the policy while you’re still alive, you can transfer ownership to the organization of your choice. The policy’s death benefit will then go to the charity when you pass away, or the organization can choose to access the funds earlier by selling it, surrendering it for cash or taking out a life insurance loan. Make sure you talk with your insurance company to clarify who will be responsible for any remaining premiums once the policy is transferred.
Name the charity as a beneficiary: This allows you to maintain your ownership of the policy while still having reassurance that the death benefit will be donated when you pass away. You can also choose to name multiple charities as beneficiaries or keep loved ones as beneficiaries on the policy while adding a charity as an additional one.
Give an annual donation through dividends: This is only an option for permanent policies, as they have a cash value component. Not all insurance carriers may offer this option, as paying out dividends depends on the carrier’s annual financial performance, so make sure to confirm that this option is available to you before pursuing it.
Add a charitable giving rider: A charitable giving rider allows the policy owner to designate a percentage of the policy's face value to be paid as a donation to a qualified charity of their choice upon their death. The rider typically applies to nonprofit organizations recognized by the IRS as a 501(c)(3). Keep in mind that this rider may have specific limitations, such as a cap on the payout and the percentage of the death benefit that will be distributed. This feature is generally only available on policies with a death benefit greater than $1 million.
Want to donate your life insurance policy to charity? Let SelectQuote help.
There are many options available when deciding whether to donate your life insurance policy to charity, and it can be overwhelming to know where to start. Luckily, SelectQuote can help. Our licensed insurance agents can help you compare policies from many of the nation’s most trusted carriers in just minutes, making it easy for you to review and compare your options. We’ll learn about your unique priorities and help you make the right decision to ensure that your policy benefits the organization or cause that matters most to you.
