Life changes. So should your clients’ strategies.
A life insurance policy purchased years ago may no longer fit a client’s needs. Maybe the kids are grown or the mortgage is paid off. Many clients will choose to keep a policy in place to provide estate liquidity or pass along an inheritance—but others are considering surrendering their policy or letting it lapse.
Before they do, make sure clients understand their policy’s remaining potential. Even a policy that feels like a forgotten asset can become a powerful philanthropic tool. With little or no out-of-pocket cost, your clients can turn underutilized coverage into a lasting charitable legacy—and enjoy meaningful tax and planning benefits in the process.
Gift Option 1: Transfer an Existing Policy
For clients holding an old policy they no longer need, a complete transfer to charity can be one of the simplest and most impactful approaches. Since not all charities accept insurance policies, donors should confirm first. If accepted, the client assigns all incidents of ownership to the qualified charity, making it both owner and beneficiary.
If the policy is fully paid up, the charity can hold it until maturity with no additional cost. If premiums are still owed, the donor should plan to make annual gifts to the charity to cover them—gifts that also qualify for a charitable deduction.
Tax-wise, the donor typically receives an income tax deduction equal to the lesser of the policy’s fair market value (FMV) or their cost basis. If the policy’s value exceeds $5,000, the IRS requires a qualified appraisal to substantiate the deduction. Remind clients that any outstanding loans will reduce the deductible amount.
This strategy can be especially effective for high-net-worth clients and business owners who want to offload a policy they no longer need while maximizing the value of their gift.
Gift Option 2: Fund a New Policy
Some clients are drawn to the idea of using a new life insurance policy to fund their charitable legacy—particularly if they want to leave existing coverage in place for family needs.
In this strategy, the donor contributes cash to the charity, which uses the funds to purchase a new policy on the donor’s life. The charity owns the policy, is named beneficiary, and applies for coverage.
Because the donor is making a cash gift to the charity (not paying premiums directly to the insurer), the contributions generally qualify for a full income-tax deduction up to 60% of AGI. The policy’s eventual death benefit will be paid to the charity outside the donor’s estate, delivering a leveraged philanthropic result without affecting the donor’s other assets.
This approach can be particularly attractive to charitably inclined individuals who may have high income today and want to plan a meaningful gift for the future.
Gift Option 3: Name the Charity as Beneficiary
Not every client is ready to part with ownership of their policy—but they may still want to ensure their favorite charity benefits in the end.
A simple solution is for the client to retain ownership and name the charity as the sole or percentage beneficiary. This allows the client to maintain control and flexibility throughout their lifetime. If their situation changes, they can modify or revoke the designation at any time.
There’s no current income tax deduction for this gift, but the death benefit paid to charity is deductible from the client’s taxable estate. This can be a useful planning tool for clients with large estates who want to reduce estate tax exposure while making a meaningful charitable contribution.
For clients hesitant to part with a policy today but still want to make a difference, this can be the ideal solution.
Why Life Insurance Gifts Matter
No matter the structure, life insurance gifts can offer:
• Privacy and speed. Unlike bequests through a will, these gifts avoid probate and public disclosure.
• Dual tax advantages. Depending on how the gift is structured, donors may benefit from both current income tax deductions and future estate tax savings.
• Amplified impact. Life insurance allows clients to turn modest premium payments or dormant policies into a far more significant gift—freeing up other assets for personal or family use.
These strategies are more than just legacy tools—they’re conversation starters. When a client has a policy they no longer need, it’s the perfect moment to revisit their overall goals. Many clients are eager to make a lasting impact but don’t realize their policy can help them accomplish this. You can build trust and provide value by showing them how easy and effective a life insurance gift can be.
