Making a gift of your life insurance is a wonderful way to increase the impact of your philanthropy. Donating a life insurance policy will not decrease your current income or affect your financial status, and because its value increases as your policy matures over a term of years, you may be able to make a much larger gift to the Academy of Holy Angels than you would during your lifetime.
There are several ways an individual can use life insurance as the basis for a charitable gift, and each is accompanied by varying income and estate tax deductions allowed to the donor. For example, you may wish to sign over your life insurance policy to the Academy of Holy Angles, in which case you would continue to pay your monthly premiums and, upon your death, the full face value amount of your policy is contributed to AHA as a charitable gift. Using this method, the donor benefits from both an income tax deduction based on the premium payments and earns an estate tax deduction equal to the value of the policy.
Another option is to designate the Academy of Holy Angels as the beneficiary (or contingent beneficiary) of your life insurance policy. In choosing this method, you retain lifetime ownership of this policy, therefore retaining the right to cash it in, borrow against it, and change the beneficiary. Because you retain ownership of the policy, you will not receive an income tax charitable deduction for this (future) gift or for your premium payments during your lifetime. However, the policy's proceeds will be included in your gross estate, thus your estate is allowed and estate tax charitable deduction.
Alternatively, the Academy of Holy Angels can benefit from your life insurance policy through the "wealth replacement" concept. Using this method, you would need to make a current gift to AHA, therefore receiving a charitable tax deduction. At the same time, you would purchase a life insurance policy to replace either the donated amount or the amount after estate tax that the policy’s beneficiary would have received. The advantage to the donor is that, depending on the circumstances, the charitable tax savings and any life income resulting from the gift may defray the cost of the wealth replacement insurance premiums.