Hoping to create a philanthropic legacy that outlives you? Consider life insurance

When you think of life insurance, what is the first thing that springs to your mind?

For most people, it would be the financial security of their family. However, life insurance can also be used to fund charitable activities and causes.

Philanthropists will be happy to know that the charity of their choice can receive a significant amount of funds even after their passing. Designating a charity as the beneficiary of life insurance is allowed by many reputable insurers. The process is neither too complex nor entails any particular financial costs other than regular premium payments.

How life insurance can multiply your generosity

Consider this scenario: If you purchase a life insurance policy with a predetermined number of premiums of, say, AED 150 a month and AED 100,000 in benefits, not only will the distributed payments be less burdensome financially, but also the amount you can leave your favourite charitable institution with will be far greater than what you could donate at one time.

You can thus leave a legacy that goes beyond just family and extends to charitable causes you cared for. The only drawback is that the payout will be available to the charity after your passing. However, as whole-of-life insurance products earn significant interest during the policy tenure, the final payout that a charity stands to receive will be significantly higher than total premiums, making the arrangement and the waiting all the more rewarding from the beneficiary’s standpoint.

Other options that life insurance provides

Life insurance can fund charitable causes in several other ways:

Endowment creation

Life insurance can be used to establish an endowment for a charitable organization. Instead of naming the charity as the beneficiary, you can designate a trust or foundation as the beneficiary, with instructions to use the proceeds to create an endowment for the charity. This ensures ongoing financial support for the activities of the charity.

Charitable trusts

Life insurance policies can be owned by charitable remainder trusts or charitable lead trusts. In a charitable remainder trust, the death benefit is paid to the trust. In a charitable lead trust, the death benefit of a policy is paid to the charity for a specified period, after which the remaining assets go to the donor's heirs. This arrangement helps the donor protect the interests of the heirs while ensuring an enduring legacy.

Donation of policy

You can also donate an existing life insurance policy to a charitable organization. By transferring ownership of the policy to the charity, you may be eligible for a tax deduction for the cash value of the policy or premiums paid.

Buy-sell agreements

For business owners, life insurance can be used as part of a buy-sell agreement to fund the transfer of ownership interests upon death. If a business owner's share is sold to other co-owners or the company itself upon his/her death, the proceeds from the life insurance policy can be used to facilitate the transaction and any excess funds can go to a charitable cause.

Life insurance provides a versatile and tax-efficient way to support charitable causes and leave a lasting legacy of philanthropy. By either gifting a policy outright or naming a charity as a beneficiary, you can ensure your generosity does not end with your time in this world.