Most commonly people buy life insurance to protect their families by creating an estate. Their family members can use the money in the estate to pay off debts, put their children through college and create an income stream. This financial support is something that the family would have normally had if this person had not died. In essence, the life insurances replaces the income of the deceased. 

Life insurance can be a valuable gift when given to a nonprofit organization. A donor can buy a life insurance policy and pay a small premium to create a larger gift at their death. By either gifting a policy outright or naming a charity as a beneficiary, they can provide the charity of their choice with a large sum of money and provide a legacy for a cause they believe in. This is also a useful way to dispose of an unwanted policy originally purchased to cover a need that no longer exists. 

Potential Benefits to Donor 

  • The donor can create a large gift at their death which costs pennies on the dollar over time. 
  • If the policy is owned by the charity, then when the donor pays the life insurance premium the donor's gift is considered a tax deduction. 
  • Many donors start a small endowment fund during their lifetime to honor a spouse or family member only to have that cease when the donor dies. With this method, the life insurance gifted at the donor's death could provide perpetuity to the endowment. 

Potential Benefits to Nonprofit 

  • Life insurance allows someone with less income to make a big deferred gift. 
  • The nonprofit will receive the entire face amount of the policy upon the death of the insured and this can represent a substantial windfall for the charity. 
  • Life insurance allows your annual givers to create endowments or other gifts in perpetuity. 

Let's explore the example of John, age 40, who would like to establish a million-dollar endowment in his father's name at their local university (this is a hypothetical example for illustrative purposes only). Initially, to start the endowment, John would be required to gift somewhere between $10,000-$25,000. Once the endowment is set up, John, his family members, and others could make sporadic or yearly gifts to the endowment. John wants a guarantee that upon his death that the endowment of $1 million has been completed, thus John purchases a life insurance policy where the first beneficiary is the endowment up to the goal of $1 million. If there is any remainder value, the second beneficiary of the life insurance policy could be other charities or family members. 

Another hypothetical example would be Betty who is 65 years old. She is financially secure and has enough income to comfortably maintain her lifestyle for the rest of her life. She has a life insurance policy that she no longer needs which could create a gifting opportunity to her favorite charity. She has several options. Option one, she could continue to own the policy and pay the premiums. The beneficiary of the policy would be her favorite charity, and this would result in a significant gift to charity at her death. Option two, she could gift the life insurance policy and change the ownership to the charity today, meaning that there would be a tax deduction on the amount of the cash value the charity receives in that year. Meanwhile, she could continue to give annually to the charity, which is a tax deduction, and this could be used to pay the premium. Upon Betty’s death, the charity would receive to total value of the life insurance proceeds.  

If you are considering a gift of life insurance to a charitable organization, either through a new policy or from an existing policy, we highly suggest that you seek qualified professional life insurance counselor to help you navigate the intricacies of the process. Please contact Bill at (913) 322-9177.



Financial Professionals do not provide specific tax/legal advice and this information should not be considered as such. You should always consult your tax/legal advisor regarding your own specific tax/legal situation.  

Bill Eckert, CAP® is a registered representative and investment advisor representative of Securian Financial Services, Inc. Securities and Investment Advisory Services offered through Securian Financial Services, Inc. member FINRA/SIPC. Renaissance Financial Corporation is independently owned and operated. Address: 7500 College Boulevard, Overland Park, KS 66210. (913) 322-9177.  5040537 11/2022