Introduction
Life insurance is more than family protection — it can be a powerful philanthropic tool. You can support a cause you care about by naming a charity as beneficiary or by gifting an existing policy outright. Each method has different tax, administrative, and estate implications. In my practice advising individual clients and families, I’ve seen well-structured insurance gifts multiply charitable impact while fitting cleanly into broader estate plans.
Why use life insurance when giving to charity?
- Leverage: A relatively small current outlay (premiums on a new policy) can produce a much larger future gift (the policy’s death benefit). This can be attractive for donors who want to leave a large legacy without liquidating other assets now.
- Certainty: The death benefit is usually predictable (a fixed face amount with many permanent policies), which charities can value for planning purposes.
- Flexibility: You can give an existing policy or purchase a new one and name the charity as owner and beneficiary.
Key ways to gift a life insurance policy
1) Name the charity as beneficiary (keep ownership)
- What happens: You remain the owner and keep control of the policy (you can change beneficiaries, borrow the cash value, or surrender the policy). The charity will receive the death benefit only when you die.
- Tax effects: There is generally no current federal income tax charitable deduction for simply naming a charity as beneficiary while you keep ownership. The death benefit may be excluded from your taxable estate if the charity is both owner and beneficiary at death — but if you retain incidents of ownership (rights to change the beneficiary, surrender the policy, or borrow cash value) the policy may still be includible in your estate for estate-tax purposes. For estate inclusion guidance see the IRS estate tax pages and Publication 559 for final rules (see sources below).
2) Transfer ownership of an existing policy to a public charity (outright gift)
- What happens: You sign an assignment transferring ownership to the charity. The charity becomes owner and beneficiary; it may choose to pay future premiums or allow the policy to lapse if it prefers.
- Tax effects: A completed gift of an existing policy can produce a current charitable income tax deduction for the donor. How much you can deduct depends on the policy’s type and value at the time of transfer and on IRS valuation rules. If a deduction is claimed for a donated policy and the amount is substantial, the IRS may require a qualified appraisal and Form 8283. See IRS Publication 526 (Charitable Contributions) and Publication 561 (Determining the Value of Donated Property) for valuation and reporting guidance.
3) Purchase a new policy with the charity named as owner and beneficiary
- What happens: You (or a third party) buy a policy on your life and make the charity both owner and irrevocable beneficiary. Typically the charity must accept ownership; many charities will only accept this arrangement on occasion and may have minimum face-amount requirements.
- Tax effects: If you make premium payments after the charity owns the policy, those payments are generally deductible as charitable contributions in the year paid (subject to the usual AGI percentage limits) because you are effectively making cash gifts to the charity to maintain the policy.
4) Donate cash value or use the policy as collateral in a split-interest gift
- Options: Some donors assign the policy’s cash surrender value to a charity or use a life insurance policy within a charitable remainder trust (CRT) or private foundation planning. These are specialized strategies and typically require legal and tax counsel.
Practical steps to make a life insurance gift
- Check whether the charity accepts policies
- Not all charities accept life insurance gifts. Confirm acceptance, preferred ownership forms, and any minimum face value with the charity’s planned giving or development office.
- Decide how to give (beneficiary vs ownership transfer)
- If you want a current income-tax deduction, plan to complete the transfer of ownership before claiming a deduction (and be prepared to substantiate the value).
- Obtain valuation and complete paperwork
- For existing policies, record the policy’s cash surrender value and any policy illustrations. If you claim a deduction for a policy exceeding $5,000 in value, IRS rules usually require a qualified appraisal and completion of Form 8283. Work with an appraisal professional and your CPA to meet IRS documentation rules (see IRS Pub. 526 and Pub. 561).
- Execute an assignment and update records
- Transfer forms vary by insurer. The carrier will generally require an assignment form, a change-of-owner form, and documentation that the charity accepts the gift.
- Tell your estate team
- Update your will/trust documents and coordinate with estate counsel to ensure the gift matches your broader estate plan and to avoid unintended estate-tax inclusion.
Tax and estate issues to watch closely
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Incidents of ownership: If you retain rights over the policy (ability to change beneficiary, surrender, or borrow), the policy may remain in your gross estate for estate-tax purposes. To remove it, you must transfer all incidents of ownership to the charity and let that transfer be a completed gift.
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Deduction limits and substantiation: Charitable contribution deductions are subject to AGI limits (and different limits may apply by asset type). Noncash gifts often require additional substantiation; for donated property with claimed value over $5,000 you generally need a qualified appraisal and Form 8283 attachment.
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Premium payments after transfer: If you keep ownership but name a charity as beneficiary, payments you make later are generally not deductible as charitable contributions. If the charity owns the policy and you make contributions directly to the charity to cover premiums, those payments may be deductible.
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Public charities vs private foundations: The type of charity affects deduction limits and reporting. Public charities (most 501(c)(3) charities) have more favorable deduction limits than donor-advised funds or private foundations. Confirm the charity’s status via IRS resources or its Form 990.
Examples (simplified)
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Existing permanent policy: You own a whole-life policy with a $500,000 death benefit and a $20,000 cash surrender value. If you transfer ownership to a qualifying public charity and the charity accepts, you may be able to deduct an amount related to the policy’s current value subject to IRS rules and appraisal requirements. The charity could then either pay future premiums or convert the policy to a paid-up status depending on the carrier’s options.
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New policy strategy: A donor takes out a $1,000,000 term or permanent policy with the charity as owner. The charity must accept ownership; in many cases charities prefer policies funded by ongoing contributions rather than donated premium obligations. The donor can instead make annual gifts to the charity to cover premiums — those gifts are deductible in the years made.
Common pitfalls and how to avoid them
- Assuming every charity will accept a policy: Always confirm in writing whether the charity accepts life insurance gifts and what minimums or conditions apply.
- Underestimating required documentation: For significant noncash gifts, the IRS requires appraisal documentation. Plan ahead to get qualified appraisals so you can substantiate deductions.
- Forgetting estate-tax consequences: If you retain control of the policy after naming a charity beneficiary, check with your estate attorney — you may not achieve the estate-tax exclusion you expect.
Related planning techniques and resources
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Consider using insurance within wider estate liquidity or equalization strategies. See our article on “Life Insurance in Wealth Transfer: Funding Estate Taxes and Equalizing Inheritances” for context on how insurance can provide liquidity for taxes and legacies: https://finhelp.io/glossary/life-insurance-in-wealth-transfer-funding-estate-taxes-and-equalizing-inheritances/
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Review policy design and trust structures that can formally remove incidents of ownership, such as an Irrevocable Life Insurance Trust (ILIT). Read more in “Life Insurance Riders and Trust Structures for Estate Planning”: https://finhelp.io/glossary/life-insurance-riders-and-trust-structures-for-estate-planning/
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If you’re evaluating permanent policies as vehicle for charitable gifts, our primer on “Permanent Life Insurance” explains cash value mechanics and policy types: https://finhelp.io/glossary/permanent-life-insurance/
Frequently asked questions (short answers)
Q: Do I get an income-tax deduction if I name my favorite charity as beneficiary?
A: Not if you keep ownership. You typically get a current deduction only if you complete a gift of ownership to the charity or make deductible premium gifts after the charity owns the policy.
Q: Will the charity have to pay taxes on the death benefit?
A: Death benefits to a charity are typically received tax-free. Confirm with the charity and your tax advisor, since unusual arrangements can produce different outcomes.
Q: What if the policy has loans or is underfunded?
A: Outstanding loans, surrender charges, or low cash value can affect the gift’s value. The charity will evaluate whether to accept such a policy.
Professional tips
- Coordinate early with the charity’s planned giving officer. Many charities provide a written donation acceptance policy to speed transfer.
- Use an ILIT or clear transfer of ownership to remove incidents of ownership if your goal is estate-tax exclusion.
- Keep detailed records (policy numbers, carrier contacts, assignment forms, appraisal reports, and the charity’s written acceptance).
Authoritative sources and further reading
- IRS Publication 526, Charitable Contributions: https://www.irs.gov/publications/p526
- IRS Publication 561, Determining the Value of Donated Property: https://www.irs.gov/publications/p561
- IRS — Life insurance proceeds and estate inclusion guidance: https://www.irs.gov/businesses/small-businesses-self-employed/life-insurance-proceeds
- National Association of Insurance Commissioners — guidance on charitable giving with life insurance (NAIC resources and model forms).
Professional disclaimer
This article is educational and not individualized tax, legal, or financial advice. Rules for charitable deductions, estate inclusion, and reporting change periodically; consult your CPA, estate attorney, or the receiving charity before completing a transfer.
In my practice I’ve found that careful coordination among the donor, the charity’s planned giving officer, and tax counsel turns what can feel like a complex transfer into a durable and tax-efficient legacy gift. If you’re considering a significant insurance donation, start the conversation early and document each step.
