Supporting a good cause with life insurance

Legacies are for sports stars, rock stars, and movie stars, right? Wrong.

You don’t have to be a star—or even rich—to leave a legacy. With the right planning and preparation, you may be able to leave a legacy for your family or a worthy cause regardless of your net worth.

While some people may want to leave money behind after they are gone to support children or other loved ones, others may want to support a charity or cause they believe in. Read on to understand all the options.

Can I use life insurance for a charitable donation?

Yes. Life insurance policies can be used to make charitable donations. Life insurance policyholders may choose to donate their policies or the death benefits from their policies to a charity of their choice.

Why might policyholders choose to support charities with life insurance?

To make a difference. Whether you are supporting research to cure a disease, a religious or educational organization, or shelters for animals, you may choose to leave a donation to any charity of your choice. There may already be charitable causes you support that you would like to continue to help even after you are gone.

Life insurance is one way for people who are not wealthy to give money to a cause they believe in. For individuals who don’t have large estates or who haven’t created a will, a life insurance policy can sometimes be a great way to leave a legacy.

How do I use my life insurance to give to a cause that is important to me?

There are several different ways to use your life insurance policy to support the cause of your choice. You might be able to:

• Name a charitable organization as the beneficiary of your life insurance policy.

The beneficiary is the person or organization that receives death benefits when you pass away. Death benefits are the money paid to the person or organization of your choice following your death. Policyholders can change their beneficiaries at any time.

It is important to note that you can name multiple beneficiaries. So, you could name a family member as a partial beneficiary and a charity as a partial beneficiary. The policyholder can pick the amounts that each beneficiary receives. For example, you might decide to split your life insurance policy 80/20, so 80 percent went to a loved one and 20 percent to a charity.

You can also name a primary and a secondary beneficiary. In this case, you may choose to specify that your spouse is the primary beneficiary, but that a charity is the secondary beneficiary if your spouse passes away before you.

• Add a charitable giving rider to your life insurance policy.

These “riders” are add-ons to traditional whole life insurance policies that allow policyholders to designate a small percentage, typically the equivalent of 1% of the policy’s value, to be paid out to a charity of their choice. This charitable donation does not impact what is paid to the beneficiary.

Riders are sometimes available at no additional cost to the policyholder. Other riders do have a small monthly cost that is added to the policy.

Riders are typically only available for high-dollar policies. They are not an option with every policy or every insurance company.

• Donate a whole life insurance policy to a charitable organization.

In this case, a policyholder would sign over their policy to the charitable organization while they are still alive. This is different than naming a charity as a beneficiary (which means the charity only collects after the policyholder passes away).

The charitable organization can continue paying premiums or cash out the policy for cash value. The cash value of a policy is the amount the policyholder has paid on the policy, not the total death benefit. The policyholder could also continue paying the premiums for the charity, even after donating the policy.

Donating to a charity can help you leave a lasting legacy and support a worthy cause. There are many different types of charities that can use legacy gifts to make a positive difference in the world. If you are interested in making a charitable donation using your life insurance policy, check with the charity of your choice to discuss your options.