Underappreciated and overlooked: Why life insurance matters to charitable giving
A message from the CICF Collaborative, including Central Indiana Community Foundation, Hamilton County Community Foundation, IMPACT Central Indiana, the Indianapolis Foundation, and Women’s Fund of Central Indiana
Written by Clark Collier, CAP®, Director of Giving Strategies
Even in an era when term life insurance policies may dominate, many people still hold whole life, variable life, or universal life insurance policies. In many cases, when the original need for a policy goes away (e.g., children become independent or other assets have increased to fill risk gaps), a policyholder may be left wondering what to do with the policy.
Before cashing in a policy, it’s worth knowing that life insurance can play a meaningful and often overlooked role in charitable giving. A common approach is naming a charity as the beneficiary of a life insurance policy, either in full or in part. This strategy enables a donor to make a significant future gift at a relatively modest current cost of the annual premiums, particularly when the policy is already in force. For someone who has established a donor-advised or other type of fund at the community foundation, this method may align well with estate planning goals because the death benefit passes directly to the fund outside of probate and may help reduce the taxable value of the estate.
Another way insurance policies are used in philanthropy is through the donation of an existing policy to the community foundation or other charitable organization. In this case, actual ownership of the policy is transferred to the charity, which then becomes both the owner and beneficiary. The donor may be eligible for an income tax deduction equal to the policy’s fair market value, generally based on its “interpolated terminal reserve” plus unearned premium, subject to applicable limitations. If the policy still requires premium payments, donors can continue funding those payments through additional tax-deductible contributions to charity, effectively converting future premium dollars into charitable gifts.
Finally, donors can use insurance creatively in more advanced charitable planning strategies. For example, a donor may purchase a new policy specifically for charitable purposes, often using annual contributions to fund premiums over time, or combine insurance with vehicles such as charitable trusts or donor-advised funds to enhance long-term giving impact. In some cases, insurance helps replace wealth passed to charity so heirs are not financially disadvantaged, allowing donors to balance philanthropic intent with family goals. Through these approaches, insurance policies offer flexibility, leverage, and tax efficiency, making them a valuable tool in a well-rounded charitable giving plan.
If you are interested in learning more about how your life insurance policies can help you achieve your charitable goals, we encourage you to consult your financial advisor about the details and then reach out to the giving strategies team at the CICF Collaborative. In particular, we are happy to help evaluate how life insurance gifts might fit alongside other giving vehicles, such as donor-advised funds and legacy funds. We are here for you!
About the Author
Clark Collier is CICF’s director of giving strategies, working with individuals, families, and their advisors to structure meaningful and impactful philanthropy. As a Chartered Advisor in Philanthropy ®, Clark provides gift planning support and counsel to the CICF Collaborative and nonprofit organizations throughout the region. He previously served as a philanthropic advisor for CICF and in development roles for both local and global organizations.
About the CICF Collaborative
CICF Collaborative is a partnership of philanthropic organizations working together to strengthen communities across the region. Each entity within the CICF Collaborative, including the cornerstone entities, Central Indiana Community Foundation, Hamilton County Community Foundation, IMPACT Central Indiana, the Indianapolis Foundation, and Women’s Fund of Central Indiana brings deep knowledge, strong relationships, and its own individual, focused mission. The CICF Collaborative unites the entities by providing shared services, allowing the entities to operate more efficiently and effectively. By leveraging what we each do best, we’re able to better serve our communities and create more lasting impact, together. Learn more »
