Give & Receive - Life Insurance - Wealth Replacement | InFaith Community Foundation

Give & Receive

Life Insurance - Wealth Replacement

Life Insurance - Wealth Replacement can be an effective, tax beneficial way to benefit heirs in replacement of an asset redirected to charity.

Target Audience:

  • Client is insurable
  • Desires to leave a portion of the estate to his/her heirs
  • All other financial needs are covered by outside resources
Practice Tips

If a portion of the payment from a gift annuity or charitable remainder trust will be used to pay the premium for the wealth replacement policy, consider the following:

  • Use conservative estimates when determining the client's capacity to make premium payments.
    • A portion of the income received from charitable trusts and gift annuities is taxable. Make sure taxes are factored into the analysis.
    • Take into account cash flow issues as well. Income from trusts and gift annuities are typically paid on a quarterly basis, at the end of a quarter. Make sure the client has sufficient funds to cover the first premium payment.
    • Income from a charitable remainder unitrust can vary from year to year. Consider how a decline in trust payment amount will affect the client's ability to make premium payments.
  • Illustrate dividends conservatively.
  • Plan ahead for potential issues in the future related to mental capacity.
    • It is sometimes better to issue a policy that is scheduled to be paid-up over a short period of time rather than a policy that requires payments for life.
  • Include family members in the conversation.
    • Family members might be more supportive of the charitable gift if they understand that wealth replacement insurance is part of the plan.
  • Review the health of the policy at least annually once it is issued.
    • Life insurance should not be viewed as a stagnant investment. It is better to identify problems early on than when it is too late to make adjustments.
    • Ask if the death benefit can expire due to longevity and if so when does that occur?
    • Is the assumed rate of return used in the initial illustration still realistic?
    • Potential options available to the client if there are problems with the policy:
      • Terminate Policy
      • Increase Premium
      • Reduce Death Benefit
      • Cash-in Policy
      • Exchange for New Policy

contact a gift planner for assistance