If you’re thinking about taking out a life insurance policy, you’re probably doing so to take care of the loved ones who would be left behind in the unfortunate event of your passing. Your spouse or partner, for example, along with any dependents. But there are other beloved people you might want to consider, too — those whose life and/or happiness is supported by a nonprofit organization or charity.
If there is a charity that has meant a lot to you over the years — or if you merely want to be generous with your end-of-life planning — you’re not alone. According to Giving USA, Americans gave more than $427 billion (with a “b”) to nonprofits in 2018 (the most recent year for which information is available). However, how much of that came from after-life planning is not specified. (One expert told us it’s a relatively small portion, because tax benefits tend to favor the living, and because so many people fail to make an estate plan.)
For those wanting to include a charity in their end-of-life planning, there are a few tips to keep in mind, as well as some pros and cons to consider. We spoke with Patrick Hicks, estate planning attorney at Trust & Will (whose online will services are included at no cost as part of the Haven Life Plus rider, included in the Haven Term life insurance policy. Trust & Will also is available independently of the Haven Life Plus rider, as a paid service). Hicks told us what you need to know about giving a life insurance policy to charity.
Identify the causes you want to support
A lot of us occasionally think, “Hey, I should really support [my kid’s school/my local hospital/my favorite cause].” But for better and for worse, the number of causes worth our time, attention and resources is overwhelming. Zero in on where you really want your money to go, and who could use it most.
“It sounds simple,” Hicks says. “But it’s important to be sure you’ve identified the organization you actually want to support. There are many charities doing wonderful things and many of them have very similar names. Some charities have regional offices or chapters, so you could choose to support the national organization as a whole or support the local chapter directly.” In other words, decide whether you want your money to support an organization’s broader mission, nationally or even internationally, or if you want your dollars to make their impact felt closer to home.
And while it might seem obvious, you should make sure the organization is legit. “Make sure to get the organization’s full legal name (which often varies from their commonly used names) and their EIN or tax identification number,” Hicks says. “Most charities include this on their website, but you can also check aggregator sites, like Charity Navigator.”
Speaking of: Organizations like Charity Navigator also grade nonprofits on how efficiently they spend their (read: your) money. It’s always worth checking their site to make sure you’re getting the most nonprofit bang for your donated bucks.
Consider giving a part of your estate plan
In terms of naming an organization as a term life insurance beneficiary, it really is as easy as writing the organization’s name in your documentation, and if you die during the coverage term of the policy, the policy will be paid out to your beneficiary/ies as specified in your policy.
Of course, you’ll have the option to name multiple beneficiaries and contingent beneficiaries, so don’t fret that this is an all-or-nothing proposition.
Keep in mind that there’s no federal or state tax benefit for naming a charity as the beneficiary of your term life insurance policy. Nor can you write off your premium payments as an income tax deduction.
However, if you donate the proceeds of a permanent life insurance policy, which provides coverage for your entire life, you have more tax strategies available to you. Consult a financial professional or tax advisor before giving a permanent policy to a charity.
“Most charitable organizations are more than happy to help with this process — their websites usually have Giving or Donations pages that give helpful info and even sample gift language,” Hicks says. “Many organizations also have planned-giving experts who can help discuss various giving options to help you make a gift that is appropriate for your situation, and that will make a lasting impact for a cause you support.”
Reach out to your favorite charities in advance
Contacting a charity also helps make sure the gift is planned correctly, like listing the correct legal name and EIN. This also helps if you have specific uses you want the donation to support.
“If you’re giving a very large gift or if you’re giving specific assets, it might be a good idea to contact the charity first,” Hicks says. “That can help make sure the process is seamless and head off any unexpected complications.
Lastly, it might make things easier on your loved ones later on. “Some people do hesitate to contact the charity because they don’t want to draw attention or don’t want to be committed to something that might change in the future,” Hicks says. “Charities know that situations change, and the $50,000 you planned to donate might turn into $5,000. Working with the charity can make those changes easier by making sure your gift planning is appropriate for you at all stages of life.”
Make the giving decision that works best for you
Hicks lists a few reasons why including a nonprofit in your estate planning can be a great idea.
“Charitable organizations can greatly increase the impact of a donation,” he says. “These organizations are set up to leverage all their donors, partners, and service providers to maximize their impact. For example, it might cost you $5 to provide one meal to someone in need, but a charity already operating in that sphere might be able to provide twenty meals for that same $5.”
There’s also your life and legacy to think of. “You’ve spent your entire life impacting the world,” he says. “That does not have to stop at your death. Leaving bequests ensures that your impact will continue.”
In sum, naming a nonprofit organization as a life insurance beneficiary is one more way that end-of-life planning can bring peace of mind — not just for you, but for your family, too.
The information provided is not written or intended as specific tax or legal advice. Haven Life Insurance Agency does not provide tax or legal advice. Individuals are encouraged to seek advice from their own tax or legal counsel. Individuals involved in the estate planning process should work with an estate planning team, including their own personal legal or tax counsel.
Haven Life Plus is the marketing name for the Plus Rider, a rider to the Haven Term insurance policy that is available to Haven Term policyholders (except in NY, FL, SD, WA and ND). The Plus Rider is included as part of your policy, and offers access to “Plus Benefits”, which are additional products, services and benefits. Although the Plus Rider is not available in California, California residents may still be able to opt in to certain benefits and services available under this rider. Participation in the services and benefits provided are optional.
The Plus rider provides access to additional services and benefits either at a discount or at no charge for certain products and services (“Plus Benefits”). Not all Plus Benefits are available in every state. Plus Benefits are provided by third party vendors (“Partners”). Neither Haven Life nor MassMutual are responsible for the provision of Plus Benefit services or benefits. By activating a Plus Benefit, you are entering into a customer agreement with the Partner. Please review all Partner terms and conditions carefully. Plus Benefits are non-transferable, have no cash value, and are subject to change at any time.
Haven Life and MassMutual will not share your personal information with Partners, and Partners will not share personal information with Haven Life or MassMutual.
Haven Term policyholders may opt out of Haven Life Plus by contacting firstname.lastname@example.org at any time.