Insurance Previously Gifted

Charities, foundations and educational institutions (“organizations”) that own policies gifted to them by donors, can explore the life settlement option on their donated policies in certain situations.

Although these policies were generally donated with the intent that they would ultimately pay out a death benefit to the organization, the life settlement option creates an opportunity for the organization to have an immediate monetary benefit. The organization obtaining these settlement proceeds can use these funds to continue offering the types of programs that the benefactor supports.

Organizations may seek the settlement opportunity for many reasons. For scenarios where the organization is making the premium payments, simple economics may have resulted in a situation where there is no longer capital available to continue making those payments. The policy may be in danger of a lapse or surrender. Organizations today find it increasingly challenging to raise funds for current projects, so the added burden of premium payments can often be overwhelming. Taking advantage of the settlement option can allow for a large cash influx and relieve the burden of overwhelming premium payments.

To ensure that a decline in fundraising doesn’t result in a decline in services, these organizations must look into alternatives for raising critical capital. In this scenario, the life settlement option can create liquidity from an asset which the organization owns. Instead of selling a traditional asset just to raise much needed funds, the life settlement can provide an immediate infusion of much needed capital to an organization that finds itself in a financially challenging position, while at the same time reducing the organization’s responsibility to pay premiums.

Donating the Proceeds of a Life Settlement

The life settlement option also creates new and creative opportunities for donors to gift funds to the organization. Rather than gifting a life insurance policy that becomes the organization’s responsibility to maintain, the donor can sell the life insurance policy and donate the proceeds. This may result in a higher tax deduction, and it gives the donor the opportunity to see the tangible benefits of the gift during the donor’s lifetime.¹

Term policies have no cash value and are worthless if allowed to lapse, but most term policies can be converted to permanent insurance. This makes it possible for a donor to sell an otherwise worthless policy in a life settlement to raise capital to make a gift to an organization.

The consent of the policyowner and insured is required.

Reasons to Consider a Life Settlement

A life settlement:

• Provides cash that can be used immediately to fund the organization’s purposes
• Eliminates future premiums on donated policies
• May reduce the need to spend down long-term investments
• Creates new gifting opportunities

An organization should consider a life settlement in the following situations:

• The organization is finding it difficult to pay the premiums.
• The policy is at risk of lapsing or being surrendered.
• The donor wishes to see the tangible effect of the donation while still living.

Other Considerations

The life settlement process for an organization parallels the procedure for individuals, businesses and trusts. The insured’s privacy is protected by state and federal laws. In every case, the insured must consent to a life settlement.

When an organization or donor wishes to consider the life settlement option, Brookwood Settlements will utilize its considerable resources and deep knowledge of the life settlement industry to help organizations and donors realize the full value of their policies.

¹ Brookwood Settlements does not provide legal, accounting, tax or financial advice, and donors are advised to speak with a tax advisor.