Life Insurance And Charitable Giving: A Timeless Mindset
No matter when you entered the business, you have seen charitable uses of life insurance go from one of the hottest planning ideas to one of the coldest and then back again.
Charitable whole life policies in the 1970s, vanishing premium universal life in the 1980s, charitable reverse split dollar in the 1990s coupled with dozens of other plans along the way made for a bumpy ride. Rather than jumping with both feet onto the bandwagon at every turn, successful charitable producers understand that successfully incorporating charitable ideas is more of a general mindset than a specific sales idea. Here are four examples of what we mean:
Charitably Enhanced Fact Finder
Too many producers miss a golden opportunity for a charitable discussion during the fact-finding process. “Do you want to leave any money to charity?” is not the correct question. Perhaps you might consider this question instead: “I know that your father was very active in your church’s mission program. If I could show you how to create a $50,000 endowment fund in his name for a cost of $50 a month, would you have any interest in creating a legacy fund like that?”
Which approach do you think is more successful? If someone chooses to increase the primary policy death benefit to incorporate this charitable legacy, what do you think that does to persistency? A simple, vastly underused concept based on a holistic charitable planning mindset.
Wealth Replacement 101
Nearly every life insurance producer who illustrates a charitable remainder trust includes a wealth replacement option whereby an Irrevocable Life Insurance Trust purchases a policy with a death benefit equaling the charitable giftor some variation thereof.
So to illustrate, if mother gives away $1 million to the charitable trust, upon her death, wealth replacement allows her heirs to receive $1 million of estate- and income-tax-free life insurance benefits. This is Wealth Replacement 101. Why is this strategy so accepted for charitable remainder trust gifts, but is almost never illustrated when a will bequest, gift annuity or retirement plan bequest is involved? These latter strategies represent over 90% of all planned gifts.
Plain Vanilla Charitable Life Insurance
A charitably inclined person can easily purchase a new policy, designating the charity as owner and beneficiary, and then make subsequent premium payments. To take it up a notch, the premium payments could be made with long term appreciated property to further enhance the tax effectiveness.