How Your Life Insurance Can Support Your Favourite Charity

Did you know that your life insurance policy can be a powerful tool for giving back to a cause you deeply care about? Donating a life insurance policy to a registered charity can help you fulfill your philanthropic goals while making a meaningful impact. This strategy has long been a favored approach for those wanting to leave a lasting legacy, and it's worth considering if there's a charity close to your heart.

When it comes to donating life insurance, you have two primary options: gifting the policy during your lifetime or naming the charity as a beneficiary of your policy. Each option carries unique benefits and considerations, depending on your goals and circumstances.

Option 1: Naming a Charity as a Beneficiary

One straightforward way to make an impact is by naming your chosen charity as a beneficiary of your life insurance policy. With this approach, you retain full control of the policy throughout your life, meaning you can change the beneficiary if your situation changes. Upon your passing, your estate will receive a donation receipt equivalent to the value of the death benefit, which can be used to reduce taxes. Recent rule changes also provide added flexibility, allowing your executor to determine whether the donation credit is applied to your personal tax filings or those of your estate—making this a tax-efficient way to support a charitable cause.

Option 2: Donating a Life Insurance Policy During Your Lifetime

The second option is transferring ownership of your life insurance policy to a charity while you're still alive. In this case, you may receive an immediate charitable donation receipt based on the fair market value of the policy. Plus, if you continue paying the policy premiums after the transfer, you'll receive additional donation receipts for those premium payments. However, it's important to note that transferring a policy can lead to a taxable event, particularly if the policy has cash value. The taxable amount is based on the cash surrender value and the adjusted cost basis of the policy. In some cases, especially if your health has changed and increased the policy's market value, the donation receipt may be greater than the taxable amount—helping offset other income.

That said, not all charities are set up to accept life insurance policies directly, as they may have specific restrictions or limitations in their constitutions or investment requirements. It's always a good idea to discuss your intentions with the charity first to ensure they can accept your generous contribution. Advisors at Garrett Agencies can assist you with this process as well.

A Meaningful Opportunity

If you have a life insurance policy that no longer fits into your financial plans, consider donating it instead of surrendering it. By transferring it to a charity, you could turn something you no longer need into a meaningful gift that benefits both you and the charitable organization—a win-win for everyone involved!

Conclusion & Next Steps

If you're interested in learning more about how your life insurance can support your charitable goals, Garrett Agencies is here to help. Our team can guide you through the options and ensure that your donation aligns with both your financial and philanthropic interests. Contact us today to explore how we can assist you in making a lasting impact through charitable giving.