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Charity-Owned Life Insurance

Support the charitable organizations you treasure. Leave your legacy impact.

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Spotlight on: Charity-Owned Life Insurance

Even if you don’t have the means to make lump-sum gifts, charity-owned life insurance enables you to become a legacy donor. From a modest donation to a large parting gift, life insurance can be a great mechanism to support your favorite philanthropic cause.

If you have a charitable organization that is near and dear to your heart, you may have considered ways to leave a legacy impact.

Whether your passion lies at your alma mater, church or another foundation, these organizations rely on charitable donations to keep their operations funded.

While many contribute a portion of their salary each month to help keep things going, large, lump-sum gifts tend to be the fuel that helps grow impact over time. Though few have the means to make that kind of out-of-pocket donation in their lifetime, charity-owned life insurance enables virtually anyone to become a legacy donor.

Why Higginbotham? Because we understand your “why.”

At Higginbotham, we treasure the charities that serve our communities.

As a company that leads with values, we know how important charitable organizations are to the people and the communities they serve.

Employee owned and customer inspired, we can help you plan your gift today so you can leave a legacy tomorrow.

We begin with listening and end with a plan that allows you to make an impact.

By committing to transparency and demonstrating authenticity, we make your policy personal so you can help your favorite charitable organization accomplish more.

To learn more about how our values-based approach creates value for you and your favorite charity, click here.

Or visit our Insights page to learn more about funding a charity with life insurance.

You have questions; we have answers.

You probably have questions as you consider your options for charity-owned life insurance.

Whether you just need more information on your options or need help deciding the policy structure that’s right for you, we have the insight you’re looking for.

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Funding a Charity with Life Insurance

Life insurance can help ensure the financial security of the people who depend on you most.

From final expenses to mortgage payments and tuition, the last thing you want is for your loved ones to struggle to make ends meet after you pass away.

Though most people are aware of the value of life insurance policies in securing the future for dependents, less know about the powerful impact they can enable in charitable giving.

Charity-Owned Life Insurance Options

Once you have a charitable organization you want to support in mind, you’ll need to decide how to structure the life policy you’ll use to fund your donation. While we recommend working with a life insurance specialist as this process can be complex, the following list represents some of the most popular charity-owned life insurance options available today.

Charity Designated as the Direct Beneficiary of a New Policy

Designating a charity as the direct beneficiary of a permanent (whole) life policy may be the easiest way to make a legacy impact. By explicitly creating a policy with a charitable organization named the beneficiary, you can avoid the complexity of some of the other strategies and maintain access to the policy’s cash value throughout your lifetime.

This cash value access makes a charity beneficiary policy an excellent option for individuals who want the added security of a nest egg should the need arise. As a bonus, if you want to split your death benefit between a charity and estate, these life insurance policies can easily be structured to do so.

Gifting an Existing Policy

If you outlive your heirs or accrue enough wealth that you no longer need the death benefit payment of your life insurance policy, you can opt to gift it to the charity of your choosing.

Functioning much in the same way as the direct beneficiary strategy described above, this approach can also enable you to stop making premium payments after the transfer of your policy. In most cases, a charity receiving a whole life policy as a gift before you pass away will have a few choices:

  • Place the policy on a reduced paid up status.
  • Take out a loan against the policy’s current cash value.
  • Surrender the policy in exchange for a lump sum payment.

In some cases, donors gifting a permanent life insurance policy could become eligible for a tax deduction in the fiscal year they make their donation.

Charity Designated as Owner and Beneficiary of a New Policy

Designating a charity as both the owner and beneficiary of a new life policy can offer some attractive benefits for those looking to spread the tax benefit of their gift out over an extended period.

This is accomplished by way of a “pass-through” strategy in which the benefactor makes recurring donations to cover the premium payments for the charity holding the policy.

Because they’re funded by charitable donations, these life insurance policies can also typically bestow a tax benefit to the donor.

Using a Policy to Fund Annual Gifts

If you prefer to support your favorite charity throughout your lifetime, select whole life policies are eligible for annual dividends from the issuing insurance carrier.

The cash from these dividend payments can be used to fund regular charitable donations, providing a tax benefit up to the point at which total donations exceed the amount paid into the policy in premiums.

While this can be a great way to make ongoing donations, it’s important to remember that dividends are not guaranteed and may be subject to market influences out of your control.

With this in mind, the dividend donation strategy may not be a good fit for a charity that relies on regular donations to cover its operational cost.

Charity-Owned Life Insurance Policy Options

Once you’ve decided how you want to use life insurance to help a charitable organization, you’ll need to select a policy to fund your donation. While this list isn’t exhaustive, the following insurance policies represent some of the most popular options for funding a charity.

Whole Life

Available in both participating and nonparticipating varieties, a whole life policy has no fixed term and is designed to last a lifetime.

The primary difference between participating whole life (PWL) and nonparticipating policies lies in the dividend distributions and the guaranteed growth of the participating option.

Though PWL policies tend to have a higher monthly premium cost, they’re usually the preferred option for charity-owned life insurance because they offer improved clarity and security over their nonparticipating counterparts.

A participating whole life policy also offers accessible cash value that can be used as collateral for a loan. In most cases, you can also withdraw against this cash value to help fund recurring contributions throughout your lifetime.

Universal Life

Universal life is another type of permanent insurance designed to provide coverage for the full duration of your life.

While these options are similar to whole life policies, they differ in their ability to offer ongoing premium payment and death benefit flexibility to you. While this added flexibility can be beneficial for people who may see a drastic change in their earnings in their lifetime, universal life policies tend to have higher fees and an increased risk of poor financial performance.

Due to their susceptibility to interest rate fluctuations and market conditions, there is a chance that they will not earn estimated returns.

Current Assumption (Interest-Sensitive)

Current assumption policies are another popular permanent life option for benefactors interested in funding charities with life insurance policies.

Effectively a hybrid of a whole and universal life option, the cash value of a current assumption policy is interest-sensitive and subject to a variable rate set by the insurance carrier. This interest rate is calculated based on the carrier’s current mortality, expenses and investment returns and can cause considerable variance in monthly premium cost and policy cash value.

Variable Life (VL)

Closer in function to a mutual fund than a life insurance policy, variable life policies afford you the option to invest your premiums in hopes of growing your death benefit beyond the average rate of return.

Designed with the safety net of a death benefit sufficiency guarantee, universal life policies can end up paying a considerably higher death benefit than other whole life options when policy dollars are invested wisely.

Equity Indexed (EI)

Equity indexed policies also offer the opportunity to grow cash value based on the performance of a broad index of stocks (i.e., the S&P 500).

Consequentially, equity-indexed policies cannot post a negative return and can be sold by agents without securities licensing.

Work with a local broker who cares about your community.

Charity-owned life insurance can be a great strategy for making a legacy impact on a cause you care about.

Whether you’re simply looking to award the death benefit on your permanent policy, pay premiums on a charity-owned policy, allow an organization to draw against the cash value of your policy or gift your policy dividends, our seasoned life insurance specialists are here to help.

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