Ratan Tata needs no introduction. He
has always used most of the wealth created by his firms for charitable
purposes, from education to medical and rural development.
With 65% ownership of TATA Sons being
held by various charitable organizations, Ratan Tata might not be a billionaire
on paper but in reality, he is the richest person in the world, with his worth
in reality being more than that of Bill Gates and Warren Buffet. He has created
unmatched goodwill with his philanthropic deeds.
If you don’t have large amounts of
money but philanthropy is one of your goals, donating your life insurance
policy to charity can be a powerful strategy. When you buy life insurance online,
you can get higher coverage for lower premiums, which in turn would allow you
to make larger gifts than you might be able to otherwise afford, while also
gaining from tax benefits.
Charitable Donation of Life Insurance: How it Works
If the thought of charity crosses your
mind, buy a life insurance policy online. All you need to do is list the
charity as the named beneficiary. It becomes a win-win situation for both you
and the organization, since both can gain certain benefits. Of course, you will
need to pay the premium on the policy as you normally would. So, what you are
effectively doing is choosing an affordable amount that you can pay annually
towards charity in the form of premium payments, although the charitable
donation will occur only when the policy can be claimed.
After your demise, any proceeds from
the policy will be contributed to the charity as a charitable gift. The reason
is that life insurance death benefits that are paid to charities are not
subject to taxation, hence the charity will be able to obtain the full sum
assured, without worrying about paying taxes.
Benefits for You & the Charity
- The premium payments are deductible from your annual tax return, also known as itemized deduction.
- The charity fund will not be included in the overall value of your taxable estate, reducing the liability of your potential estate tax.
- In case you have a policy that pays dividends, you can assign those policy dividends instead to be paid to the charity.
A good option is to buy a life
insurance policy online, since it is simple and easy, and then to transfer
ownership. In return, the charity will then issue a receipt for that gift.
Also, the charity that you are choosing must be a qualified 501(c)3 organization, which means that
the entity must meet the IRS’s definition of a nonprofit organization.
