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How Small Business Owners are Maximizing
Charitable Giving Using Life Insurance

Life insurance is a “must have” in your financial plan. The right policy helps to protect your loved ones, business partners, and those you hold near and dear from financial struggle should you pass away unexpectedly. Life insurance gives you and those you care about financial peace of mind. However, did you also know that your life insurance can also benefit the charities you believe in? For many business owners, helping their charity of choice is a great point of pride.


Business owner reviewing financial plan

Today, small business owners who are looking to support their communities and local non-profit organizations are using their life insurance to maximize their charitable gifts and provide tax benefits to their corporations.


In fact, your small contributions towards the monthly insurance premium can be leveraged into a very large charitable donation when the proceeds of the insurance policy are transferred at time of claim…all while providing valuable tax benefits to your business.

How can you donate
to your charity of choice?

By using your life insurance to give back to charity, you are creating an enduring legacy for yourself that family, friends and members of the community can reflect upon gratefully. If you know you want to make a difference for your charity by leveraging your life insurance, you can contribute to your charity in the following ways:

1. The charity can be named as beneficiary of the policy owned by the business.

Naming your charity as the beneficiary of your policy is the most straightforward approach. You maintain control of the policy and the charity collects the insurance proceeds upon your death. Since there is a direct beneficiary listed, the life insurance death benefit would bypass the estate and thus avoid any probate fees and other potential claims against the estate while also providing significant tax benefits.

Designating a charity as a beneficiary of your businesses-owned policy isn’t always clear-cut and may require some careful consideration when it comes to your overall financial plan. It is best to discuss this with a financial advisor, as there may be other options that may be better suited to your situation.

2. Designating a specific gift to a charity named in your Will and funded by the proceeds of the life insurance policy.

In this case, you would not name the charity as the beneficiary of the policy. Instead, within your Will, you would indicate that a gift of a pre-determined amount is to be paid out to your noted charity. The executor and/or your legal team will ensure this has been fulfilled as per the Will.

It is important to note that when the life insurance proceeds are transferred into the estate, they are then subject to any creditors, claims and lawsuits. Additionally, many charities will not accept gifts of life insurance policies unless they are fully paid-up.

3. The company can donate the ownership of a newly acquired policy or an existing policy during the lifetime of the policy owner.

If you currently hold a life insurance policy, you can transfer the ownership of that policy over to your charity of choice and make them the beneficiary as well. This means that they will be the acting policy holder. However, it is advisable that you speak with your financial advisor before transferring your policy in these instances, as there may be tax implications or liabilities that negatively impact your gift.

business owner at work

Remember, your charitable gift goes a long way to help those in need. As an example, consider the fact that local hospitals rely on the generosity of the community to fund things like the purchase of equipment that is vital to our care. Every dollar you contribute creates a ripple effect of benefits for our community as a whole!

Careful planning is required to ensure your company’s charitable gift is arranged and executed carefully and that it meets your specific business needs. It should be discussed at length with a trusted financial advisor, and it’s advisable to review your plan from time to time to ensure that the charity of your choice is still the one you wish to donate to. If you’re interested in learning more about how you can use this financial strategy to leave a donation to your chosen charity (while benefiting from some tax relief), give Darryl Smith a call at 705-434-0562. He’s always happy to answer your questions while walking you through the options available to you one step at a time.

With the right plan, you can retire within 10 years.

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