Published on February 09, 2022

Tax Benefits of Donating Life Insurance to Charity

The primary purpose of life insurance is to provide a safety net for those who depend on you financially upon your death.  But what if your children are grown or you have more life insurance than you need? 

Life Insurance PolicyBy transferring ownership of your life insurance policy now, you can:

  • Take a tax deduction in 2022,
  • Get the proceeds out of your taxable estate,
  • Deduct future premium payments,
  • and create a meaningful legacy for little cost. 

Donating life insurance is a wonderful way for an individual to make a substantial bequest to Silver Cross, especially when you don’t have the assets to fulfill this desire,” said Kathy Miller, State Farm Insurance Agent and Vice Chair of the Silver Cross Foundation Board of Directors. 

How it Works

The policy owner (typically, the insured) transfers an existing permanent or whole life insurance policy to the Silver Cross Foundation or purchases a new policy making Silver Cross the irrevocable owner and beneficiary.  

By donating the policy while still alive, you will receive an immediate income tax deduction for the current value of the policy.  If you pay any future premiums to keep the policy active, these payments are also tax deductible.  If circumstances change and you discontinue making the gifts, Silver Cross can surrender the policy for the cash value. 

Note:  Merely naming Silver Cross as a beneficiary of the policy will not produce an income tax deduction, since the owner (insured) still has the power to surrender the policy. 

The income tax deduction is limited to the lesser of: 

  • The policy’s fair market value, which varies on the type of policy: 
    • Ordinary Life:  The cash value plus any pre-paid premium
    • Paid-up Policy:  Present cost of a comparable policy at the donor’s current age
    • New Policy:  The gross premium just paid 
  • OR the premiums paid less dividends received in cash and any policy loans outstanding. 
Naming Silver Cross as a Beneficiary of a Policy

What if you prefer to retain ownership of the policy giving you the opportunity to modify your gift if your circumstances change - as you would with a bequest through a will?  Simply, name the Silver Cross Foundation as the policy beneficiary. You can designate all or some the proceeds to come to Silver Cross when you pass and change it if you need to anytime. By naming Silver Cross Foundation – a 501c3 as a beneficiary, you can reduce your estate and any taxes associated with it which may benefit your heirs since the payout from a life insurance policy is typically tax-free. 

Get Started

Contact your life insurance company and request a “Change of Beneficiary/Ownership” form to designate Silver Cross Foundation as the new owner and/or beneficiary of the policy. Your insurance company can provide the policy’s value as of the date of transfer.  You will need the Silver Cross Foundation’s Tax ID and inform us of the gift so we will know to contact the insurance company for the payout when you pass.  Call (815) 300-7105 or email tsimons@silvercross.org for this information. 

Physicians on Silver Cross Hospital’s Medical Staff have expertise in their areas of practice to meet the needs of patients seeking their care. These physicians are independent practitioners on the Medical Staff and are not the agents or employees of Silver Cross Hospital. They treat patients based upon their independent medical judgment and they bill patients separately for their services.