Encourage Donors to Gift Unused or Unwanted Life Insurance Policies

June 29, 2021

sangga-rima-roman-selia-LWfFfA5U5z8-unsplash

Did you know that unneeded life insurance can be used to help your organization? Over the years, many of your donors have purchased life insurance — whether it was to protect family or a key employee or as a vehicle to provide liquidity for estate taxes. As life evolves and laws change, donors inevitably need to review policies to see if they have outlived their intended purpose.

You should consider the benefits of allowing donors to give life insurance policies that no longer fit their personal needs to your organization. The policy can then be turned into cash using something called a life settlement. The cash produced from the life settlement can be used to do good at your organization TODAY.

What is a life settlement?

The old strategy of “buy and hold” no longer applies to the ever-changing world, especially with the development of a sophisticated and robust buyers’ market for life insurance policies.

When a life insurance policy is no longer wanted or needed, many policy owners either abandon their policy by not paying the required premium or surrender it back to the carrier. In either situation, the insurance carrier wins, and the policy owner is stuck holding the empty bag. A lesser-known alternative to abandoning or surrendering a policy is known as a life settlement, which provides policy owners the potential to receive a much larger cash lump sum than what is provided by the life insurance carrier’s cash surrender value.

Life settlements are not a new alternative for policy owners; however, they could be a new planning option at your organization. The modern-day “life settlement” concept can be traced back to a 1911 court decision that found life insurance should be treated as personal property and be permitted to be bought and sold. The process has matured over the past 100-plus years.

Today, third-party institutional buyers have emerged to acquire ownership of policies in exchange for paying the owner a lump sum of cash. In turn, the policy owner is no longer obligated to make future premium payments. The policy buyer then owns the life insurance policy, takes on the obligation of future premium payments, and receives the full death benefit payable from the life insurance carrier when the insured passes.

How To Spot A Life Settlement Opportunity?

Below are some key factors that can help you and your planned giving team identify a potential life settlement candidate.
  • Donors age 75+
  • Donors age 65+ with a health impairment
  • Policies with death benefits of $500K or greater
  • Donors with expiring term insurance
  • Donors selling a business, entering into retirement or recently divorced
  • Donors within the estate tax exemption of $22.8M

How Does A Life Insurance Donation Work?

  1. Donors should evaluate their personal needs for life insurance or the potential cash value that could be produced from a settlement. If they determine that there isn’t a need for either, they should contact your planned giving department.
  2. Your organization should produce a report of the various options with the policy and potential sale options for their consideration.
  3. Work with the donor on where they would like the proceeds to be used.
  4. The donor then transfers ownership of the policy to the organization.
  5. Your organization will enter into a life settlement transaction with the policy.
  6. Sale proceeds received by your organization!
  7. Donation valued by an independent appraiser to determine the charitable deduction for the donor on their policy.
  8. Celebrate the good that the generous donation of a life insurance policy will do at your organization!

It goes without saying that there are many other considerations and details to this transaction that should be carefully considered by donors and your planning team. Nevertheless, if your donors have old life insurance policies that are collecting dust, talk to them about how their unneeded policies can be used to serve the greater good.

 

We Make It Easy - Our Process

Legacy Giving makes it easy for a charitable organization to get started with forms, scripts, processes and training. We have a dedicated team that can handle incoming calls and conversations with donors. Legacy Giving, and its subsidiaries, gets paid only when you get paid in the form of contingent compensation. There are no fees to set the program up. Below is our simple three-step process to help your donors accomplish their giving goals.

Legacy Giving Process

START THE CONVERSATION