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Create a charitable legacy by donating a gift of life insurance.

By Elizabeth McCray, nonprofit strategies manager

At the Saint Paul & Minnesota Foundation, we understand the desire to give in extraordinary ways.

That is why we accept universal, term and whole life insurance policies as a way for donors to give back and create a lasting legacy. A gift of life insurance can also offer donors the possibility to make larger charitable gifts.

Benefits of Donating Life Insurance

In 2021, Cameron Huddleston writing in Forbes said, "More than a quarter of Americans who own life insurance say that one of the reasons they bought a policy was to provide a charitable gift, according to a survey by LIMRA, a financial services research and consulting organization.”

Donating life insurance is a great way to leverage your giving. Here are some of the financial benefits to donating a life insurance contract.

  • Make affordable gifts over time in the form of premium payments.
  • By using a donor advised fund (DAF), one life insurance contract can benefit multiple nonprofit organizations. A DAF is a flexible charitable giving tool that allows you to give to causes you care about, while we take care of the managing responsibilities.
  • Donors can also name their DAF as the beneficiary of the contract and retain ownership during their lifetime.

In many cases the ultimate death benefit is often much larger than the total premiums paid. Ongoing premium payments often result in charitable income tax deductions.

Let’s take a look at how this works.

Turning Life Insurance into a Charitable Gift

In 2021, we worked with a donor to turn his life insurance policy into a charitable gift to support the needs of his favorite nonprofit.

This donor took out the policy years ago when he had his own business. Eventually, the business dissolved and he no longer needed the policy. He decided to donate his policy to the nonprofit where he volunteers and serves as treasurer.

To donate the life insurance policy to the organization, he simply named the organization as the beneficiary. The organization has a nonprofit endowment fund with the Saint Paul & Minnesota Foundation, and the death benefit will go to that fund when he passes.

Partnering with Professional Advisors to Donate Future Gifts

We also work with professional advisors and their clients on gifts of life insurance.

In a similar situation, an advisor referred a donor who serves on the board of a local nonprofit to the Foundation. His fellow board members were planning future gifts, and his advisor suggested he consider donating his life insurance policy.

In this case, we became the beneficiary or owner of the life insurance policy, and when the donor passes, his beloved nonprofit organization will receive the funds from the policy via an endowment it has set up with the Foundation.

If you are a wealth manager, tax attorney or other professional advisor, see how we partner with you to support your clients’ charitable giving.

In the scenarios above, donors donated their universal life insurance policies directly to their favorite nonprofits’ endowment funds. Gifts of life insurance can also be made to a donor advised fund.

Lily & Frank’s Gift of Life Insurance

Lily and Frank

Lily and Frank have been married for more than 35 years and are preparing to retire. One of their assets is a life insurance policy purchased many years ago. It has a significant cash value, which they could withdraw, but they have more assets than they need to live a comfortable retired life.

Recently, a friend told them about a donor advised fund they established with the Saint Paul & Minnesota Foundation by donating an old life insurance policy. Lily and Frank contacted a Gift Planner at the Foundation to learn more.

They established a donor advised fund with the Foundation and donated the life insurance contract. They received a charitable income tax deduction for a portion of the cash value of the policy. The policy still requires ongoing premium payments. Every year when the premium is due, they transfer a tax-deductible gift of stock to the Foundation to pay the premium.

When Lily and Frank pass away, the death benefit from the life insurance contract will pass to their donor advised fund. Their two children will act as advisors to the fund and recommend grants to their favorite charities.

Other Ways to Use a Gift of Life Insurance

If you already have a DAF, gifts of life insurance can be another way to grow your fund. By donating a life insurance policy to a DAF, you can support multiple nonprofits with the same gift. Naming your DAF as your beneficiary allows you to retain ownership during your lifetime.

A gift of life insurance is just one example of a non-cash asset that can be used to support your charitable goals. Other assets that can be donated include real estate, stock, farm assets and cryptocurrency to name a few. Find out about all the ways to give.

Interested in learning how you can use a gift of life insurance to support the causes they care about? Download our guide to donating life insurance today.

The Saint Paul & Minnesota Foundation does not provide tax, legal or accounting advice. Please consult your own tax, legal and accounting advisors regarding your individual situation before engaging in any transaction.

This post was originally published in March 2021, and updated on Jan. 23, 2023.

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