Alumni typically donate paid-up or newly issued whole and universal life insurance policies. You have several options for doing so, which include:
- Making Denison the beneficiary of an existing policy to earn an estate tax charitable deduction
- Making Denison the owner and beneficiary of an existing policy to remove it from your taxable estate and earn an immediate income tax deduction
- Taking out a new policy with Denison as the owner and beneficiary—with tax deductions on all premium payments
- Using life insurance in conjunction with a life-income gift to “replace” for your heirs an asset that you have given to Denison
Example: A number of years ago Harry Oliver purchased a $50,000 whole-life policy to ensure funds for his children’s education. The annual premium for the policy is $1,000. His children have graduated and are now financially independent. The policy, which he still owns, has a fair-market value (usually very close to the policy’s cash value) of $22,000, and the net premiums paid equal $23,000.
Harry assigns the policy to Denison. In his 28-percent tax bracket he realizes an immediate tax savings of $6,160. In future years, Harry increases his annual gifts by $1,000 a year to Denison that, in turn, pays the insurance premium. Harry realizes an annual tax deduction of $1,000, based on his annual gifts for that purpose.