Life Settlements can help you accomplish these goals:
- Build stronger relationships with donors.
- Offer a new creative planned giving solution.
Currently, the two main methods of soliciting life insurance contributions have serious limitations for the charity, particularly from a short-term perspective. The first method, having the policy owner amend the beneficiary designation to provide the charitable organization with all or part of the death benefit of the policy, does not provide a current tax benefit to the owner. Furthermore, the charity knows it will only receive the proceeds following the death of the insured.
The second method of solicitation involves the assignment of the policy by the owner of the charity. This method involves the transfer of the title to the charity, and therefore generates a charitable contribution at the time of the assignment. The value of the donation depends on the type of policy donated, but generally, the donor can deduct the surrender value as well as any ongoing premium payments made. The charity’s ability to convert this to immediate cash depends on the amount of the policy’s cash value, if any. It will only receive the death benefit if the donor or the charity continues to pay the policy’s premiums.
Because of these limitations, Life Settlements are gaining popularity as a planned giving vehicle. If the donor’s policy qualifies, a life insurance policy can be exchanged for a lump sum cash settlement. This settlement can then be gifted to your institution. This transaction allows:
- The donor to receive a larger charitable income tax deduction.
- Your organization to receive cash now instead of a promise in the future.
- Insurance premium payments to be paid by a third party, not by the charity or the donor.
**As with any significant financial transaction, a life settlement should be examined and executed under the guidance of a trusted advisors for both the charity and the donor, and their tax advisors to determine the tax and financial impact of a this transaction.