Information About Charitable Giving
Using Your Insruance Capacity to Benefit a Charity of Your Choice
Life Settlement provides cash for a Community Charity
This case involved a community organization that owned a $500,000 variable universal life insurance policy gifted 10 years ago by a donor who is currently 78 years old. When premiums on the policy reappeared, the organization had the choice to either accept the cash surrender value, which was$0, or pursue a life settlement. They decided to review the life settlement option and have the assistance of the donor. Integrity was able to secure an offer of $180,000 for the charity. As part of that success Integrity provided a full evaluation on all of the policies that were owned by the charity and was able to assist in three more sales that were in the best interest of the charity.
How Charitable Organizations can Benefit from Life Settlements
- Provides cash which can be applied immediately to charitable causes
- Eliminates premiums and annual reviews on donated policies
- May reduce the need to spend down assets tied to long-term investments
When Should a Charity Consider Pursuing a Life Settlement?
The following are examples of when a charity should pursue a life settlement:
- If the charity is struggling to pay the premiums.
- If the policy is in danger of lapsing or being surrendered.
- If the insured (donor) expressed an interest in seeing the policy's hidden value tapped while he is still living.
What is the Process for Charitable Organizations?
- The charity (or financial professional representing the charity) obtains appropriate forms from Integrity Capital Partners, LLC. and returns them with a signed authorization from the insured (donor of the policy).
- Integrity obtains attending physicians' statements; policy illustrations, etc. (The privacy of the donor is protected throughout the process by state and federal privacy laws.)
- The case is presented to multiple funding institutions, and the highest offer is presented to the charity for consideration. Once the charity makes the decision to sell the policy and the successful life settlement provider accepts the offer to purchase, a change of ownership is completed according to the terms of the signed purchase agreement, and the funds are released to the charity.
Forward Thinking Charities – Adapting To Fluctuations in the Economy
In order to maintain stable levels of giving or grant making to community causes during periods of diminished investment returns due to fluctuations in economic conditions, some foundations may have had to draw down on their assets. As assets become depleted, the strength of their investment portfolio is negatively compromised. In instances such as this, it is possible that charitable organizations could evaluate the opportunity for life settlements on qualified policies to provide the cash infusion they need to stabilize their financial posture.
Thinking Outside the Box – Using Life Settlements on donated policies to provide immediate liquidity
Some charitable organizations have reportedly let donated policies lapse due to premium maintenance and/or costly administrative review procedures. What these organizations apparently do not know is the fact that policies donated by seniors may qualify for Life Settlements. With the donor’s cooperation and willingness to authorize the release of medical records, the charitable organization can sell the policy on the secondary market and generate revenue as opposed to letting it lapse.
If they knew Life Settlements were an option, perhaps development officers would reconsider the practice of letting policies lapse,” commented one philanthropic consultant whose clients include numerous foundations, universities and other organizations. “Most development staff are not aware of Life Settlements, but I believe having knowledge of this new wealth management tool could help them make better decisions as it relates to managing their donated life insurance policies and donor acceptance programs,” he added.
Taking a Second Look at Gift Acceptance Procedures
Given the growing connection between Life Settlements and charitable giving, non-profit professionals may want to take a second look at their gift acceptance procedures to include the role of Life Settlements. Items to consider might be:
Should the charity state in its gift acceptance policy a willingness to receive the proceeds from a Life Settlement (liquidity), in addition to or as opposed to accepting ownership of a life insurance policy (which in some instances may require annual reviews, premium payments, and recordkeeping.)
Should the charity inform the prospective donor at the outset that in exchange for accepting a donated policy, that it may seek permission in the future from the donor to sell the policy on the secondary market if it appears the proceeds from the Life Settlement will help fulfill the donor’s intended legacy more effectively than waiting to collect on the death benefit, i.e. “giving while living.”
Helping Seniors Achieve Their Philanthropic Legacy
- Tax deduction on donation
- Seeing their donation making a difference (Giving While Living)
- Using the tax savings to purchase replacement coverage
Through a life settlement, a life insurance policy may be sold on the secondary market for a greater amount than the cash surrender value but less than the expected death benefit of a policy or certificate. In addition, they may receive a tax deduction on donating the proceeds to their favorite charity.
The transaction simplifies the donor’s wish to see their contribution immediately benefit a favorite charity.
Furthermore, the tax savings on the donation could be used to purchase replacement coverage. Today, seniors can purchase more cost effective policies because insurers are offering lower prices and relaxed underwriting due to new mortality tables.
The primary target audience for Integrity Capital Partners, LLC. generally is an insured who is over the age of 65, has a life expectancy of less than 15 years, and has owned a life insurance policy with a face value of $250,000 or more for not less than 2 years.
