Life insurance is the one asset almost everyone has. For the young parent with limited dollars, it is a way to protect the family against economic loss in the event of a parent’s premature death. For the business owner, it may provide dollars to buy out a deceased partner’s interest or compensate for the loss of a key manager. For older individuals, it provides the liquidity needed to settle an estate and pay taxes.
Note to reader: The purpose of this publication is to provide general information, not to render legal advice. In addition any changes in the tax structure may affect the examples listed in this information. Your client should consult their own lawyer or other professional advisor about the applicability of this information to their situation.
Life insurance has another important use: it is a popular and practical way to make a significant gift to charity. A gift to a community foundation will be wisely administered through their investment program which will result in a stable source of income to the foundation for years to come.
- Any whole life policy (participating or universal)
- Many term policies (personal)
- Many group insurance policies (personal)
Benefits to the Community Foundation:
- Immediate access to existing cash value, when policy ownership vests with foundation
- Assurance of death proceeds if policy is owned by the foundation and is retained (Term and group insurance policies are often not retained as donors get older)
- Effective tool for building long-term endowment
- Under February 2004 Budget provisions, policy proceeds exempt from disbursement quota if endowed
Benefits to the Donor:
- Donation receipt for cash value and any future premiums paid on transfer of policy ownership
- Small current outlay leveraged into larger future gift
- If policy ownership rights retained during lifetime, no donation receipt for premiums paid, but donation receipt to estate for full value of death proceeds
- Satisfaction of providing a future gift while retaining full control of policy (in cases where donor retains ownership rights of the policy)
Most Appropriate for:
- Persons (generally ages 30-60) who
- have an older policy no longer needed, or
- want to make a large gift but have limited resources
- Persons (any age) whose personal needs and family situation may be subject to change
- Professionals with good cash flow, but limited capital assets.