Gifts of Life Insurance - Paid-Up Policy
How It Works
- You transfer ownership of a paid-up life insurance policy to Exeter.
- Exeter cashes in the policy now or maintains it and receives the death benefit later.
- You receive gift credit and an immediate income tax deduction for the cash surrender value of the policy.
- In some cases, you can use the cash value in your policy to fund a life-income gift, such as a deferred gift annuity.
- You gain the satisfaction of making a significant gift to Exeter without adversely affecting your cash flow.
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Please contact us so that we can assist you through every step of the process.
Questions and Answers
If the dividend account becomes underfunded in the future, Exeter will contact you to learn whether you are willing and able to make cash contributions to Exeter to cover the premiums as they are due. You will be eligible to claim a charitable income tax deduction for your contributions. Except in extraordinary circumstances, Exeter’s practice is to surrender policies whose premium payments are not covered by donor contributions rather than tap unrestricted funds to do so.
If your policy is paid-up (in other words, no further premium payments are expected to be due and the policy is currently self-funding), you will be eligible to claim a charitable income tax deduction equal to the lesser of your cost basis in the policy and its replacement value. Your life insurance company and tax advisor can help you determine the proper amount you are eligible to claim. [Note: if premium payments continue to be due, you’ll be eligible to claim a deduction equal to the lesser of your cost basis and the so-called “cash value” of the policy (cash value = “interpolated terminal reserve” value plus unearned premiums of the policy).]
A gift of a paid-up policy is irrevocable, and Exeter will not be able to give the policy back to you once you’ve made your gift. Thus, it’s important to consider possible future needs before deciding to contribute your policy to Exeter.
A commercial annuity, typically sold by banks and life insurance companies, will provide the owner with fixed or variable income based on commercial rates of return. These plans establish their annuity payments based on the assumption that all of the assets in the plan will be used up by the end of the income beneficiaries' lives.
A charitable gift annuity is part guaranteed annuity and part charitable contribution. The donor receives a partial income tax deduction based on the assumed value of the portion of the gift the charity will ultimately receive. A gift annuity establishes its payments on the assumption that there will be something left for the charity at the end of the contract. Often annuity rates for gift annuities cannot compete with the annuity rates of a commercial annuity because of the charitable component in the contracts. But then, there are fewer tax benefits with a commercial annuity.
Yes, you can make a gift now for an annuity contract that will defer your payments to a future date that you decide, typically sometime in your retirement years when you will need the income. In this sense, a deferred payment gift annuity can serve as a type of tax-deferred savings plan that will provide you with guaranteed income in the future.