What To Think About When Naming a Nonprofit as a Beneficiary

OlufisayoMarch 14, 2023061 views

Once you’ve gained financial security yourself, you may want to pay it forward by donating to causes you care about. Did you know that along with volunteering your time or skills, you can also consider naming the non-profit as a beneficiary to your life insurance policy?

You may have obtained the policy when your family still depended heavily on you, but now that they are financially secure, donating your death benefit can be an excellent way to contribute to a cause that means a lot to you. If you’re on the fence about naming a non-profit as your insurance beneficiary, here are three things to consider:

You can have more than one beneficiary

If you’re worried about donating the full death benefit from a whole life insurance policy or other type of permanent life insurance to a single organization, consider naming more than one beneficiary.

Your life insurance can benefit two or more charities, but you can also name family members as beneficiaries alongside the non-profit you want to support. You can typically decide what percentage of the death benefit goes to each beneficiary, so you have the freedom to decide how the proceeds are divided.

You can still access the policy’s cash value

Naming a non-profit as a beneficiary does not give them access to the cash value of the policy. You still own the policy, so you have access to any cash value and any dividends. If necessary, you can still borrow against the cash value to get the funds you need.

This will only affect your beneficiary if you don’t repay what you’ve borrowed, as taking out a loan will reduce the death benefit until it is repaid. As long as you repay the loan with any applicable interest, the beneficiary will receive the allotted death benefit after your passing.

You can reduce your taxable estate

When naming a charity as your beneficiary, bear in mind that you typically don’t get a tax deduction while you’re alive. However, after you pass your estate will receive a charitable deduction. So, making a non-profit your beneficiary can help reduce your taxable estate.

Some donors donate the policy itself to charity by making the charitable organization both the owner and the beneficiary. Donors then can choose to make tax-deductible donations to make premium payments to help keep the policy in force so the charity can receive the full death benefit.

The primary purpose of permanent life insurance is to provide a death benefit. Using permanent life insurance accumulated value to supplement retirement income will reduce the death benefit and may affect other aspects of the policy.

Source: iQuanti

Photo by Vlad Deep on Unsplash

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