Donating an existing life insurance policy to charity is common and easy to understand. You can make a significant contribution with a relatively modest cost. Most charities will list you as a donor of the amount of the death benefit even though you’re only paying the premiums.
Generally, cash value ("permanent life") policies are used. Term life policies run out at some point; when you make a gift to charity, you want it to happen, so permanent life policies work best.
Suppose you have paid $50,000 in premiums on a $500,000 life insurance policy. You no longer need the insurance so you give it to charity, which will receive $500,000 at your death. The policy can be removed from your taxable estate, no gift tax need be paid, and you can deduct the $50,000 that you’ve paid.
After such a donation, if you write checks for ongoing premium payments directly to the insurance company, your deduction can’t exceed 30 percent of you adjusted gross income (AGI). Instead, you should write checks to the charity, which can pay the premiums. This latter strategy allows your contributions to be deductible up to 50 percent of your AGI. Either way, excess charitable contributions can be carried forward and deducted for up to five years.
