An often overlooked fact about life settlements is that they have the ability to be used for charitable purposes. Here's how.
Suppose an insurance company offers a charitable giving benefit rider. This is a unique feature, available with select universal and variable universal life insurance products, which provides an additional 1 percent death benefit above the base policy face amount payable to a customer's charity of choice. An insurance company would offer a feature like this to appeal to high net worth individuals shopping for a life insurance policy.
For example, let’s say two different life insurance companies are offering similar policies at similar costs, but Policy B also includes this option to give to a charity at no extra cost to the policy owner. It would make sense for a high net worth individual involved with various charities to be drawn to purchase the policy that includes a charitable giving benefit rider.
A recent case study illustrates how this benefit can make a life settlement more attractive. In our situation, our fund purchased a life insurance policy with a death benefit of $1,000,000. We read through the policy contract and learned that the policy included the charitable giving benefit rider. We filled out the appropriate paperwork to appoint a charity, in this case Austin Habitat for Humanity, to receive the added benefit. When the insured passed away, we filed the appropriate claims paperwork which prompted the carrier to send the $10k check to Austin Habitat for Humanity.
Had the policy lapsed because the insured no longer needed it or preferred not to pay the premiums, the charity would have received nothing. But the life settlement transaction kept the charitable intent of the original policy owner intact.