Once you’ve earned financial security yourself, you may want to pay it forward by donating to causes that matter to you. Did you know that along with volunteering your time or skills, you can also consider naming the non-profit as a beneficiary on your life insurance policy?
You may have taken out the policy when your family still relied heavily on you, but now that they are financially secure, donating your death benefit can be a great way to contribute to a cause. that is very important to you. If you’re on the fence about naming a non-profit as your insurance beneficiary, here are three things to consider:
You can have more than one beneficiary
If you are concerned about providing the full death benefit from a whole life insurance policy or other type of permanent life insurance in an organization, consider naming more than one beneficiary.
Your life insurance can benefit two or more charities, but you can also name family members as beneficiaries along with the non-profit you want to support. You usually get to decide what percentage of the death benefit goes to each beneficiary, so you have the freedom to decide how the proceeds are divided.
You can still access the cash value of the policy
Naming a non-profit as a beneficiary does not give them access to the cash value of the policy. You still own the policy, so you have access to any cash value and any dividends. If necessary, you can still borrow against the cash value to get the funds you need.
This will only affect your beneficiary if you default on what you borrowed, as taking out the loan will reduce the death benefit until it is repaid. As long as you repay the loan with any applicable interest, the beneficiary will receive the intended death benefit after you pass.
You can reduce your taxable estate
When naming a charity as your beneficiary, remember that you usually don’t get a tax deduction during your lifetime. However, after passing on your property you will receive a charitable deduction. So, making a non-profit your beneficiary can help reduce your taxable estate.
Some donors donate the policy itself to the charity by making the charitable organization both owner and beneficiary. Donors can then choose to make tax-deductible donations to make premium payments to help keep the policy in effect so the charity receives the full death benefit.
The main purpose of permanent life insurance is to provide a death benefit. Using the life insurance’s permanently accumulated value to supplement retirement income will reduce the death benefit and may affect other aspects of the policy.