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Give the whole (life) story about charitable giving: for clients with a desire to "give something back," one of the most affordable and beneficial ways is through the use of whole life insurance. Here's how to educate clients about this often ideal tool for charitable giving strategies.


Market conditions over the past two years have provided new and expanded options for selling permanent life insurance, especially whole life insurance. Based on industry sales numbers from LIMRA it's evident that clients and producers have regained a new appreciation for the guarantees of whole life insurance after seeing their variable holdings decrease in value.

Such circumstances have presented our industry with a chance to educate prospective and current clients on the benefits offered through whole life policies. Many clients continue to seek ways to pass assets to charitable organizations, and whole life insurance can be an ideal tool.

Today more than ever, charitable organizations need the support of donors. Many would like to repay society and specific organizations for the blessings they have received by giving back in a meaningful way. However, they are often unaware of the options and flexibility that life insurance can provide in carrying out their charitable giving goals. As the baby boomers age, they may be seeking guidance for ways to pass their assets along to charities, while at the same time looking to protect themselves and their estates from large tax burdens.

As the values of equity portfolios have decreased during the recent downturn, it presented insurance producers with the opportunity to educate clients about the values of using life insurance as part of their charitable giving plan. Many have life insurance that can be used to benefit charities when the insured dies, or, in some cases, during the insured's life. Such policies, if left to non-charitable beneficiaries at the insured's death, will in most cases be income tax-free, but they will be subject to estate taxation in the donor's estate, thereby reducing what the heirs of the estate would receive. For this reason, life insurance policies are often tremendous assets to use for completing the estate plan that involves charitable giving. Life insurance can be used to benefit charities in three primary ways.

Designation of the charity as beneficiary at the insured's death: A life insurance policy can be used to designate one or more charities as beneficiaries of the policy when the insured dies. Such a designation is typically revocable, and therefore, the policyowner (typically the insured) can change the beneficiary during his or her life. Such a gift will generate no income tax benefits for the donor, but it will circumvent estate tax on the insurance death benefit when the insured dies, by passing the proceeds directly to the charity or charities. Not only does this save estate taxes, it can make distribution less burdensome.

Irrevocable gift of the life insurance policy to charity during the insured's lifetime: Alternatively, the policy-owner can irrevocably assign the ownership and beneficiary designation of a life insurance policy to a charity during the insured's lifetime, thereby guaranteeing that the death benefit will pass to the charity at the insured's death. If the policy is a whole life that has cash value at the time of the transfer, the donor may be entitled to an immediate charitable income tax deduction equal to the fair market value or adjusted cost basis the donor has in the policy. Typically, the donor's basis in the contract is equal to the aggregate premiums paid, less dividends paid and outstanding policy loans. In addition, when the insured dies, the insurance proceeds will pass free of estate taxation to the charity.

Wealth replacement strategy using life insurance: Individuals with taxable estates may wish to increase assets given to individual beneficiaries when they die, reduce estate taxation at death, receive current income tax benefits and make a significant gift to charity at death. An excellent way to accomplish these objectives is through a wealth replacement strategy combining a charitable remainder trust and the use of a lifetime gift of a life insurance policy.

The guaranteed level premiums, guaranteed death benefit and opportunity for future dividends make whole life insurance an ideal tool for various charitable giving strategies. For those clients that have a desire to "give something back" or who feel drawn to support a particular charity, one of the most affordable and beneficial ways is through the use of life insurance.

But hold on--future product designs, utilizing combo-type benefits, will most likely provide even more options for clients, which can provide the confidence that clients seek, especially in an uncertain market. We may find other advantages with new tax law changes like those gained in the Pension Protection Act. Combined with whole life, future product designs may offer the ability to help protect ourselves in new ways while still providing the gifting opportunities available today.

The guidance that producers give clients on their options, such as charitable giving can be what differentiates the "okay" producers from the ones who see their profession as a craft.

Mark Wilkerson, CFP, CLU, began his career in the financial services industry more than 32 years ago. He served as senior vice president and chief marketing officer of a major life insurance company for 17 years before joining OneAmerica in 2007. Mark is a Fellow of LIMRA's Leadership Institute for Executive Education and has completed executive education at the Wharton School of Business. He has served on the LIMRA board of directors and was chairman of the 2001 Annual Meeting.
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Title Annotation:WHOLE LIFE
Author:Wilkerson, Mark
Publication:Life Insurance Selling
Date:Feb 1, 2010
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