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Charitable Options For "Unnecessary" Life Insurance

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Here's the situation: You have a whole or universal life-insurance policy that you or your heirs don't really need. What do you do? Well, you may want to donate it to your favorite charity.

To be over-insured is not exactly the same problem as being under-insured. Ask any widow or widower. That noted, if you have sufficient assets to provide for your loved ones, then you may have life insurance you really do not need. In that case, consider donating it to charity.

Many of us tend to think of charity as an act of signing over an immediate gift. Nevertheless, even products like life insurance policies are important charitable contributions. What seems like a relatively small contribution now can have a big payoff later.

The Wall Street Journal considered the ins-and-outs of donating life insurance in a recent article titled "Donating a Life-Insurance Policy to a Charity."

Basically, you have two fundamental options when it comes to being charitable with your life insurance policy. First, you can designate the charity as your primary beneficiary and the proceeds will pass upon your death. This approach provides a tax benefit to your estate, but no lifetime tax benefit to you.

Alternatively, you can give the life insurance policy itself to the charity right now and enjoy tax benefits right now just as with any other immediate charitable contribution. Once the policy is owned by the charity, the charity can designate itself as the primary beneficiary.

This latter alternative, gifting the ownership now, also means you can get further tax benefits by continuing to make cash gifts to the charity so it can continue to pay the life insurance premiums. This is pretty savvy, if you currently support the same charity with cash donations.

These are notions worth exploring, if you truly have life insurance that no longer serves the purpose for which it was acquired. However, do make sure your family security is assured before taking action.

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