Life insurance is a leveraged gift, meaning that for a relatively small sum of money (the premium), you can produce a substantial death benefit for charity. It is a potentially valuable gift option that can be used to make charitable gifts. However, it may take years or decades before the charity receives the death benefit.
What are the Advantages and disadvantages of a gift of life insurance:
One of the major advantage is that It enables donors to make a large gift for a relatively small amount. A gift of life insurance is affordable if the premiums are paid over a period of years. The disadvantage is that the charity must wait years to receive the death benefit. Some donors who could make larger gifts opt for gift options like life insurance. The charity will not receive the death benefit until the death of the insured. Other gift options such as gifts of cash, stock, or real estate are more attractive to charity.
Definition of terms and parties associated with life insurance:
- The subscriber: is the individual who takes out a life insurance policy.
- The insurer: is the company or carrier of the life insurance policy.
- The beneficiary: is the one who receives the death benefit upon the death of the insured. A charity is the beneficiary for charitable gifts of life insurance.
- The premium: is the cost of the policy paid to secure coverage. It may be paid monthly, quarterly, or annually, depending on the terms of the policy.
- The insured: is generally the individual on whose life the policy is issued (although this term can also be used to describe the policy’s owner).
Other Parties and Terms:
- The owner of the policy is the one who has the right to deal with the policy or select the beneficiary. The charity is the owner of a gifted life insurance policy.
- The death benefit or face value reflects the amount of money that is paid upon the death of the insured to the beneficiary.
- The cash surrender value is the amount the subscriber or insured would receive if the policy were cashed in to the insurance company. The cash surrender value reflects the value of premiums paid and any investment growth, minus administrative expenses.