A policy payout can go to more than just your family.
Charity is someone’s business, and business is good. In 2020 alone, Americans gave $471.44 billion to charitable organizations. Of that, most of the money went to religious purposes, education, and human services, among others. Americans were in the giving spirit, for sure. But it’s not just that.
Humans are, in fact, social creatures, and we’re…*ahem* driven by our social relationships. We want to take care of each other, even if it doesn’t always feel like it. This is why it’s kind of cool that life insurance companies allow policyholders to name charitable organizations as beneficiaries. Even when tragedy strikes, policyholders can have the option to keep giving. There are various ways to leave a legacy with your life insurance, but today we want to talk a bit more about having a charity beneficiary and what that might mean for you.
- You can name a charity as a beneficiary
- Power of leaving a legacy
You name a charity as a beneficiary
Can you gift a life insurance policy? Kind of. Say what? Yeah, it’s true. When you take out a life insurance policy, you can select your beneficiaries. A life insurance beneficiary is a recipient of the policy’s payout, partial or whole. You can name who you want and you can choose multiple beneficiaries.
Who can you name? You can name a loved one, or even a business, trust, estate, or even, you guessed it, a charity as a beneficiary of your life insurance policy. And because you can choose multiple, you don’t have to pick between a loved one and the charity of your choice. You can spread the love a little bit.
Selecting a charity is great, but there are various ways for the money to get there. There are 4 common types of life insurance, and each policy type has its own ways of charitable giving.
Charitable areas money went to:
Term life insurance & charity
Term life insurance policies last for a specific amount of time, usually in lengths of 10, 20, or 30 years (subject to individual insurer). Wysh offers 2 to 47-year terms, extendable up to 65 years of age. Having a charity as a beneficiary works just like any other beneficiary—you name the charity of your choice, and, should you die unexpectedly, the charity will receive the amount you stipulate. Easy, simple, and a great way to use your insurance to give something back should you die unexpectedly. Term life policies are more limited in terms of charitable giving, since the policy only exists for a set amount of time. That isn’t to say you shouldn’t name a charity if you have a term life policy. But permanent cash value policies have more options open to them.
Permanent life insurance & charity
If you have a permanent life insurance policy (Whole, Variable, Universal, etc.), donating life insurance to charity can look a little bit different than just naming beneficiaries. You can still name the charity as a beneficiary, no problem. But permanent coverage also includes areas of investing, which can mean different tax consequences and advantages.
For example, you could transfer ownership of the policy to a charity of your choice. Now, this doesn’t mean giving life insurance to charity. Rather, this gives the charity immediate ownership of the contract (you’ll still be the insured). With permanent coverage, the charity wouldn’t have to wait for your death, leaning on the cash value of the policy. Alternatively, permanent coverage may offer dividends, which are just extra funds returned to policyholders each year that represent premium payments (dependent on insurer and policy type). You might be able to donate those dividends to a charity of your choice.
Power of leaving a legacy
Life insurance is all about making sure you’re protected should you die unexpectedly. But you can use tragedy to put some good back into the world, if you so choose. It’s up to you. And there are a lot of charities to choose from. There are approx. 1.8 million nonprofit organizations, according to the Urban Institute. Now, that may seem like a daunting number. However, the important thing is to pick the one that works best for you. You don’t have to donate to all of them. Just one.
Find out what’s important to you and look for the people who are doing the work. But make sure to do research to see if the charity you pick is on the up-and-up, ‘cause there are unsavory organizations waiting to take your money. And if you’re uncomfortable giving to large organizations, don’t forget about mutual aid networks. These are grassroots organizations that can do great community work. It’s like charity but community-oriented, so you probably have a few in your community. Go have a talk with them, we’re sure they’d love some help.