Charitable giving has been top of the mind for many Americans during the past 12 months. Billions of dollars have been raised for relief efforts as Hurricanes Katrina and Rita devastated the Gulf Coast states, the post-Christmas tsunami delivered unprecedented human suffering to the Pacific Rim, and wars in the Middle East and Africa created widespread misery.

And while many people dig deeper to help those in need both at home and abroad, some also want to make a difference over the long term–leaving a financial legacy to benefit worthy causes far into the future.

You can help clients make the most of their personal giving by introducing them to charitable giving with life insurance. Depending upon your client’s age and health, the premiums for a life insurance policy may represent just a small portion of the death benefit ultimately received by his or her favorite charity. As a result, a life insurance death benefit can provide a significantly larger gift to the charity than gifts of cash or property.

There is an extra incentive to give between now and the end of the year. Congress passed the Katrina Emergency Tax Relief Act earlier this year to promote charitable donations in support of relief efforts for hurricane victims. Donors to public charities supporting Katrina relief can take deductions for those gifts up to 100% of their adjusted gross income until the end of 2005.

Those deductions also apply to gifts of life insurance. But whatever the charity, your client can choose a policy that insures his or her life. Or, if married, the client can purchase a survivorship policy that insures both spouses and pays the death benefit after the second death.

There are three possible scenarios:

Transfer an existing life insurance policy to the charity. If your client or their spouse already owns life insurance that is no longer necessary for personal needs, making a gift of the policy can be an attractive option. Many people discover that their life insurance needs change with financial and family circumstances. Of course, they need to make a comprehensive review of their financial needs before deciding to do this.

Tax benefits. The gift of an existing life insurance policy is income-tax deductible to the lesser of the fair market value of the policy or your client’s cost basis. Specific deduction limits apply as a percentage of your client’s adjusted gross income depending upon whether the charity is public or private. If public, the deduction generally may not exceed 50% of your client’s adjusted gross income. If the charity is private, the limit is 30% of AGI.

The charity purchases, owns and is the beneficiary of a new policy. The charity applies for and owns a policy insuring the life of your client, his or her spouse, or both, and is the beneficiary. Through cash gifts, your client supplies the charity with the means to pay the policy’s premiums.

Tax benefits. Your client may claim an income-tax deduction for gifts of cash to the charity for use as premium payments, subject to the same deduction limits for public and private charities. If your client remits the premium payments directly to the insurer instead of the charity, a 30% limit applies regardless of the type of charity involved. The conservative approach is to gift the premium amount to the charity and allow the charity to remit the premium amount to the insurance carrier.

Your client buys and owns the policy and names a charity as beneficiary. This approach may be attractive if your client wishes to access the policy’s account value through loans and withdrawals to help supplement unexpected income needs but wants to pass any remaining death benefit to the charity at death. Assuming a policy is not a modified endowment contract (MEC), access to policy account values through loans is free from current federal taxation and withdrawals are taxed only to the extent they exceed the policy owner’s basis in the policy.

Distributions from MECs are subject to federal income tax to the extent of gain in the policy. Taxable distributions are subject to a 10% additional tax, with certain exceptions. Loans and withdrawals from a permanent life insurance policy will reduce the policy’s account value and death benefit.

There may be penalties and fees associated with the use of loans and withdrawals. Depending upon the performance of a variable universal life policy’s investment choices, the account value available for loans and withdrawals may be worth more or less than the original amount invested in the policy.

VUL insurance policies have charges such as premium-based loads, cost of insurance, administrative and issue charges, and surrender charges. These charges are different for each product and some may vary by age, gender, face amount, underwriting class, premiums and policy durations. These charges will have a significant impact on policy account values.

VUL policies also have a mortality and expense risk charge and underlying fund operating expenses that include fund management and 12b-1 fees, if applicable. These expenses also have a significant impact upon policy account values.

Together with the additional charges, these expenses are reflected in each product’s prospectus and should be reviewed with your client. Policy account values for VUL policies vary with actual underlying fund performance. The investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost.

Tax benefits. If your client chooses to own a policy with a charity as beneficiary, he or she may enjoy tax-advantaged supplemental income from the policy. However, there will be no current income-tax deduction for premiums paid since this approach is not considered a complete gift under current law. At death, the policy proceeds will be included in your client’s estate, but the estate will be able to deduct the portion passing to the charity.

There are several ways to make a gift of life insurance. Which gifting technique your client ultimately chooses depends upon his or her charitable goals and financial situation. But for those who want to make a significant, long-term difference for their favorite charity, life insurance offers an attractive alternative. With the season of giving upon us, you can help your clients make the most of their philanthropy for years to come.

Patrick Smith is assistant vice president and director of advanced markets for the Individual Life Division of The Hartford Financial Services Group Inc., Hartford, Conn. He can be reached at Patrick.smith@hartfordlife.com.