Global Courant
If you had a life insurance policy at an earlier stage of life that you no longer need, the usual way to deal with it is to let it expire or take the cash surrender value if applicable. There is another possibility: you can donate the insurance policy to charity. There are a number of conditions that must be met for this idea to work.
The charity must accept the insurance policy
The concept is that if you donate your insurance policy to charity, they will eventually receive the payout which will be the donation. Since you are still alive, it will take a while for the payout to take place. The ideal policies that charities would want are policies that are about to expire or will soon be paid out. In the meantime, the premiums must be paid to keep the policy running. If you continue to pay as a donor, you can get tax relief for the premiums after the transfer, but if you stop paying, the charity will not receive a payment. The charity will typically be willing to pay the premiums, but they will only do so if the payout is worth it. The charity should also be prepared to accept this type of gift as it can be too complicated or overwhelming for certain organisations. Having large one-time donations can be problematic for charity cash flow management.
The value of the insurance policy must be verified
The value of the policy should be valued according to the terms. This includes the premiums, health conditions, riders, and special rules that may appear in the policy. This valuation should be done by an underwriter or actuary.
Your income must be high enough
If you succeed in donating the insurance, you can claim an amount of up to 75% of your income in the year in which you donate the insurance. You also have up to 5 years to transfer the amount if you cannot claim it immediately. If your income isn’t high enough or you can’t use the funds, there’s no point in making a large donation. Even if all the ducks line up, you will receive a fraction of the donation in terms of tax credit – usually between 15% and 29% of the donated amount.
The insurance policy must be paid
The insurance payout must be intact in order to donate it to charity. If not, the value won’t be as worth it.
Tax liability on sale
If the cash surrender value exceeds the adjusted cost basis (ACB) of the sale, there may be a tax liability on the sale that would negate any benefit of gifting the insurance policy.
What can I do with a life insurance policy that I no longer need?
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