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When you think about making a major gift to a cause you love, you probably picture a one-time, lump-sum donation. For many, that feels out of reach. But what if you could make your largest-ever charitable contribution without touching your retirement savings or the inheritance planned for your family? A well-structured life insurance policy makes this possible. Using life insurance for nonprofits is an innovative and highly effective strategy that allows supporters to turn smaller, regular premium payments into a significant future gift. This guide breaks down how this powerful tool works, offering a practical path for donors to create a lasting legacy and for organizations to secure their long-term financial stability.
When you think about life insurance, you probably think of it as a way to protect your family’s financial future. But what if it could also be a powerful tool for securing the future of a cause you care about? For nonprofits, life insurance is an innovative fundraising strategy that allows donors to make a significant future gift at a relatively low cost today. It’s a way to transform modest, regular contributions into a major donation down the road.
This approach allows you to plan a substantial gift that might be far larger than what you could donate from your regular income or assets. By using a life insurance policy, you can create a lasting legacy for an organization without impacting the inheritance you plan to leave for your family. It’s a strategic part of estate planning that aligns your financial capacity with your philanthropic goals, ensuring the nonprofit has a reliable source of funding to continue its mission for years to come.
Charity-Owned Life Insurance, or CHOLI, is exactly what it sounds like: a life insurance policy that is owned by a nonprofit organization. In this arrangement, the nonprofit is both the owner and the beneficiary of the policy, which is taken out on the life of a key supporter or donor. The donor typically helps the organization pay the policy premiums, which are considered tax-deductible donations.
When the donor passes away, the nonprofit receives the full death benefit, often providing a substantial financial windfall. This strategy gives the organization a clear and predictable future asset, helping it plan for long-term projects and financial stability. It’s a straightforward way for donors to make a major impact and for nonprofits to secure sustainable funding.
For this strategy to be effective, the right type of policy is crucial. Permanent life insurance policies, like whole life, are the best fit for nonprofits. Unlike term insurance, which only covers a specific period, permanent policies are designed to last a lifetime as long as premiums are paid. More importantly, they build cash value over time.
This growing cash value becomes an asset on the nonprofit's balance sheet. The organization can borrow against it or even surrender the policy for its cash value if a more immediate need arises. This feature aligns perfectly with the principles of The And Asset®, where life insurance serves as both a protective measure and a growing financial tool. Term policies lack this cash value component and can expire, making them a less reliable option for long-term charitable giving.
Life insurance is one of the most effective yet underutilized tools in a nonprofit's fundraising toolkit. When structured correctly, it creates a powerful win-win scenario: your organization receives a significant future gift, and your donors get a simple way to make a major impact while enjoying some attractive financial benefits. It’s a strategy that allows supporters to give far more generously than they might be able to with a simple cash donation, turning modest, manageable payments into a substantial contribution down the road.
This approach moves beyond traditional fundraising methods by integrating charitable giving with smart personal finance. For donors, it’s an opportunity to plan their legacy, manage their tax liabilities, and support a cause they care about deeply, all through a single financial instrument. For nonprofits, it provides a predictable future revenue stream that can secure long-term stability and fund major projects. By understanding how to present this option, you can open up a new channel for transformative gifts that support your mission for years to come.
Donating a life insurance policy allows a supporter to make a much larger gift to your organization than they might think possible. Instead of writing a one-time check, a donor can make regular, affordable premium payments that will eventually result in a substantial, tax-free payout to your nonprofit. This method transforms smaller, ongoing contributions into a major future donation, empowering people of various financial capacities to leave a significant impact.
This strategy works best with permanent life insurance policies, such as whole life, because they build cash value over time. This growing cash value becomes an asset on your nonprofit's books, providing financial stability. It’s a powerful way for donors to leverage their money, ensuring their support for your cause is amplified far beyond what they could give from their disposable income alone.
One of the most compelling reasons for a donor to gift a life insurance policy is the array of tax benefits. When a donor transfers ownership of a policy to your nonprofit, they may receive an immediate income tax deduction. Furthermore, if they continue to pay the premiums on the policy, those payments can also be treated as tax-deductible charitable contributions each year. This provides an ongoing financial incentive for their generosity.
Beyond the income tax benefits, this type of gift can also be a key part of a donor's tax strategy for their estate. By removing the life insurance policy from their personal estate, they can reduce its total value, potentially lowering future estate taxes. This makes it an incredibly efficient way to transfer wealth to a cause they believe in, ensuring more of their money goes toward your mission instead of to the IRS.
For many supporters, the ultimate goal of giving is to create a lasting legacy that reflects their values. A life insurance gift is a profound way to achieve this. It’s a planned, intentional act that ensures their support continues long after they are gone, creating a permanent connection between them and your organization's future. This isn't just a donation; it's a statement about what mattered to them in life.
This form of giving is a cornerstone of effective estate planning, allowing a donor to make their largest-ever gift to your cause without taking away from the assets they plan to leave for their family. It provides them with the peace of mind that they are securing the long-term future of a mission they are passionate about. By facilitating these gifts, you give your most dedicated supporters a powerful tool to fulfill their philanthropic vision.
Bringing life insurance policies into your fundraising strategy isn't as complicated as it might sound. There are a few primary ways your organization can start acquiring these powerful assets. Each path offers a different way to partner with your donors, allowing you to tailor your approach to what works best for them and for your nonprofit's long-term goals.
Think of this less as a new, complex program and more as an extension of your existing major gift and planned giving efforts. The key is understanding the mechanics of how these policies come under your organization's ownership. Whether a donor transfers an existing policy or helps you establish a new one, the process is designed to be a win-win. Let's walk through the three most common methods for acquiring a policy, so you can see how this strategy can fit into your development plan.
One of the most direct ways to get started is by accepting donations of existing policies. A supporter may have a permanent life insurance policy they no longer need for its original purpose, like protecting a mortgage that’s been paid off or providing for children who are now financially independent. By transferring ownership to your nonprofit, they can give a substantial future gift.
Once your organization owns the policy, you have two main options. You can continue paying the premiums—often with financial help from the original donor or others—to receive the full death benefit later. Or, if you need funds immediately, you can surrender the policy for its current cash value. This flexibility allows you to decide what best serves your mission right now versus in the future.
Another effective approach is for your nonprofit to purchase a new life insurance policy on a key supporter, with their full consent and cooperation, of course. In this scenario, your organization is the owner and beneficiary from day one. This method is particularly powerful for donors who want to make a significant future impact but may not have the liquid assets to make a large cash gift today.
Typically, the donor will agree to make annual tax-deductible donations to your nonprofit to cover the premium payments. This structure allows them to leverage smaller, manageable contributions into a major legacy gift down the road. It’s a collaborative effort that builds a strong, lasting relationship between the donor and your organization, all while aligning with a smart tax strategy.
Regardless of which path you take, this isn't a journey you should take alone. Successfully managing a life insurance program requires a team of experts. Partnering with experienced financial advisors, insurance professionals, and legal counsel is essential for handling the details correctly. These professionals help you manage the legal, tax, and administrative sides of acquiring and maintaining policies.
They ensure your program is structured properly, complies with all state regulations, and maximizes the benefits for both your organization and your donors. Building this team of trusted advisors is a foundational step that protects your nonprofit and gives your supporters confidence in the program. You can find a wealth of information on these topics in our Learning Center to get started.
Using life insurance in your fundraising strategy is a fantastic way to secure significant future gifts, but it’s not as simple as just accepting a check. This approach comes with specific legal and ethical guidelines you need to follow to protect your organization, your donors, and the integrity of the gifts themselves. Think of these rules not as hurdles, but as the foundation for a strong and sustainable program. Getting compliance right from the start builds trust with your supporters and ensures their generous contributions can achieve their full potential without any legal headaches down the road.
Successfully managing a life insurance program means paying close attention to three key areas: understanding the specific laws in your state, maintaining open and honest communication with your donors, and keeping meticulous records. Each piece is critical. State laws determine whether you can even own a policy on a donor. Transparent communication ensures your donors feel confident and respected, which is the cornerstone of any successful fundraising effort. And solid documentation guarantees that a policy remains active and that you have a clear plan for managing it over the long term. By addressing these areas proactively, you can create a program that is both effective and ethically sound, honoring the trust your donors place in you.
Before you do anything else, you need to understand the concept of "insurable interest." In simple terms, this legal principle means a person or entity buying a life insurance policy must have a financial interest in the insured person continuing to live. For nonprofits, the rules on whether you have an insurable interest in a donor can be complex and, most importantly, they change from state to state. Some states have specific statutes that allow charities to own policies on donors, while others are more restrictive. This isn't something you can guess on. You must get legal advice from a qualified professional to make sure your program complies with your state's specific laws.
Honesty is always the best policy, especially when dealing with financial gifts that span decades. You owe it to your donors to be completely transparent about how a charity-owned life insurance policy works. Be prepared to clearly explain who is responsible for paying the premiums, how the death benefit will be used, and any other important details. Donors should feel fully informed, not pressured. This open dialogue builds a stronger, more trusting relationship and ensures their gift is part of a meaningful estate plan that aligns with their values. Always be open and clear with donors about the mechanics of the arrangement to honor their generosity and intent.
A life insurance policy is a long-term asset, and you need to treat it as such. This starts with creating and maintaining clear, organized records for every policy your nonprofit owns. Your internal documentation should include a copy of the policy, a record of all premium payments, and contact information for the donor. Crucially, your organization needs a concrete plan for who will pay the ongoing premiums. If a donor who intended to cover the premiums can no longer do so, what’s the backup plan? If premiums aren't paid, the policy could lapse, and the donor's intended gift would be lost. Meticulous record-keeping is essential for proper stewardship.
Donating a life insurance policy is more than just a generous act; it’s a financial decision with significant tax implications for both you and the nonprofit you support. When structured correctly, it can be a powerful tool for building your legacy while also being incredibly efficient from a tax perspective. Understanding these benefits and rules is key to making sure your gift has the maximum impact for the cause you care about and for your own financial plan.
One of the most compelling reasons to donate a life insurance policy is the potential for tax advantages. First, gifting a policy can reduce the size of your taxable estate. For entrepreneurs and investors with significant assets, this is a straightforward way to lower future estate tax liabilities, ensuring more of your wealth is passed on or used as you intend. Beyond estate planning, you may also receive an immediate income tax deduction for the value of the policy at the time you donate it. And if you decide to continue paying the premiums on the policy after you’ve gifted it, those payments can also qualify as tax-deductible charitable contributions each year. This turns your ongoing support into a smart tax strategy that benefits both you and the nonprofit.
As with any financial strategy, the details matter. The IRS has specific rules about how to value and document a donated life insurance policy, and getting it wrong can jeopardize your tax benefits. This isn't a DIY project. Both you and the nonprofit should work with experienced financial, legal, and tax professionals to ensure everything is handled correctly. Proper guidance is essential for handling the valuation process, filing the right paperwork (like IRS Form 8283 for noncash charitable contributions), and making sure the gift complies with all regulations. A professional can help you understand the nuances of structuring a life insurance policy for charitable giving, protecting you and the organization from any compliance headaches down the road.
The exact amount you can deduct depends on a few factors, including the type of policy and its fair market value. Generally, the deduction is the lesser of the policy's fair market value or your cost basis in the contract. It’s also important to remember that charitable deductions are subject to limitations based on your adjusted gross income (AGI). However, the financial leverage is what makes this strategy so powerful. A relatively small premium payment can result in a death benefit that is many times larger, multiplying the impact of your gift. When you make a life insurance policy part of your estate plan, you’re not just making a donation; you’re creating a substantial future gift that can cement your legacy and provide transformative support for a cause you believe in.
Using life insurance for fundraising is a smart move, but it’s not without a few hurdles. Like any powerful financial tool, it requires careful management and clear communication to work effectively. Anticipating these common challenges means you can create solid plans to handle them, ensuring your program runs smoothly and successfully. Let's walk through the main obstacles and their straightforward solutions.
A life insurance policy is only valuable if it stays active, which means someone has to pay the premiums. If payments are missed, the policy could lapse, leaving the nonprofit with nothing. The first step is to create a clear plan for who will cover these ongoing costs. If the donor continues to pay, set up a simple reminder system. If your organization takes over, the best practice is to establish a dedicated fund specifically for premiums. This prevents the money from being used for other operational costs. Regularly reviewing the policy with a financial professional also ensures it continues to perform as expected and meet your long-term goals.
You don’t need to be a life insurance expert, but you do need one on your team. These policies involve legal, tax, and financial details that require professional oversight. Trying to manage everything in-house can lead to compliance issues or poor financial outcomes. Instead, build a team of trusted advisors, including a financial advisor, an insurance professional, and an attorney. They play a critical role in vetting policies and ensuring legal compliance. Partnering with a firm that understands the nuances of life insurance as a financial tool is key to building a program that donors trust and that delivers real results for your cause.
For a donor, gifting a life insurance policy is a major decision. If the process feels confusing, they’re likely to walk away. Your job is to make it as simple as possible. Ditch the industry jargon and create straightforward materials—like a one-page summary or a website FAQ—that explain how it works. Be upfront that this gift impacts their legacy planning. Frame it as an opportunity to make an incredible impact without touching their retirement assets. By simplifying the conversation, you empower donors to make a confident decision about their estate and philanthropic legacy.
Discussing life insurance with donors doesn't have to be complicated or awkward. When you frame the conversation around legacy and impact, it becomes a powerful way to connect with your supporters on a deeper level. Many donors are actively looking for smart ways to make a significant difference, and gifting a life insurance policy is an incredible tool for doing just that. It allows them to make a much larger future gift than they might be able to give from their cash flow today.
The key to a successful conversation is preparation. You need to anticipate your donors' questions, equip your team with the right information, and create a clear, simple message that resonates with their desire to leave a lasting mark. It's not about a hard sell; it's about presenting a financial strategy that benefits everyone involved. By focusing on these three areas—clearing up common misconceptions, training your team to speak confidently, and creating a compelling outreach plan—you can turn a potentially complex topic into an inspiring opportunity for both your organization and your supporters.
Before a donor can get excited about an idea, you have to clear away any confusion. Many people assume that using life insurance for charitable giving is a complex legal process or that it will take away from their family's inheritance. It’s your job to show them how simple and effective it can be.
Explain that the process can be as straightforward as naming your organization as a beneficiary on a new or existing policy. You can also address concerns about their legacy by showing how a policy allows them to give a substantial future gift without touching the other assets they’ve set aside for their heirs. This approach is a core part of a well-rounded estate plan that provides for loved ones while also supporting important causes.
Confidence is contagious. When your team and board members can speak clearly and comfortably about life insurance gifts, your donors will feel more at ease. They don't need to become insurance experts, but they should understand the basics: what it is, how it benefits the donor, and the incredible impact it can have on your nonprofit’s future.
Provide your team with simple talking points and answers to frequently asked questions. Most importantly, train them to know when to bring in a professional. Building a relationship with a financial advisor who understands charitable giving strategies ensures that donors get expert, personalized advice. This positions your organization as a credible and trustworthy partner in their philanthropic journey.
Your communication should focus on the "why" behind the gift. Create simple, compelling materials—like a one-page handout or a dedicated page on your website—that tell the story of what a future gift can accomplish. Use clear language that highlights the primary benefit: a donor can leverage modest premium payments today into a transformative gift tomorrow.
Showcase how this strategy helps people live intentionally and build a powerful legacy. Sharing stories of other supporters who have chosen this path can be incredibly inspiring. When you reach out, make the process feel easy and accessible. The goal is to spark a conversation about what’s possible, showing donors a practical path to making the biggest impact of their lives through your organization.
Launching a life insurance giving program might sound complicated, but it doesn’t have to be. By breaking it down into a few key phases, you can build a sustainable program that serves your organization and your donors for years to come. A well-structured plan ensures you’re prepared to handle these significant gifts with the care and professionalism they deserve. It all comes down to establishing your internal rules, assembling the right team, and communicating the opportunity clearly to your supporters.
Think of it as building any other major fundraising initiative. You need a solid foundation, a team of experts, and a clear marketing plan. These three steps will guide you through the process, turning a powerful idea into a practical reality for your nonprofit.
Before you even mention life insurance donations to a potential supporter, you need to have your internal playbook ready. This is your chance to get ahead of questions and create a smooth, consistent process. Start by defining your gift acceptance policy. Decide what types of policies you’ll accept—for example, will you only take whole life policies, or are you open to others? How will you handle policies that still have ongoing premium payments?
Answering these questions upfront prevents confusion down the road. Your policy should also outline who on your team is responsible for managing these assets and what the process is for liquidating a policy when the time comes. Having these procedures documented ensures that everyone is on the same page and that you can guide donors with confidence.
You don’t have to be an expert in insurance law or tax strategy, but you do need to have people on your team who are. Assembling a group of qualified professional partners is non-negotiable. This team should include an experienced financial advisor, an insurance professional, and an estate planning attorney. They will help you handle the legal, tax, and administrative details that come with accepting and managing life insurance policies.
These partners can vet potential policy donations, ensure all paperwork is compliant, and advise your organization on the best way to manage the asset. A firm that specializes in comprehensive financial planning can be an invaluable resource, helping you integrate these gifts into your nonprofit’s long-term financial strategy and ensuring you follow all the rules.
A great program is only effective if your supporters know it exists. You need to talk about life insurance donations consistently across all your communication channels—your website, email newsletters, social media, and at events. Most donors need to hear about an opportunity multiple times before they consider acting on it. Frame it as a way for them to leave a lasting legacy and make a more significant impact than they thought possible.
Equally important is your plan for recognizing donors who make these generous gifts. Publicly thank them and, with their permission, share their stories to inspire others. This creates a culture of giving and shows other supporters the powerful impact they can have. Make the process as simple as possible, with clear steps for anyone interested in learning more.
Getting a life insurance fundraising program off the ground involves two key phases: setting up the mechanics of how you’ll accept and manage policies, and then building the relationships and communication strategies to make it thrive. When you approach it with a clear plan, you create a powerful new way for supporters to contribute to your mission for years to come. It’s about making the process straightforward for your team and simple for your donors. Here’s how to get started.
The core of your program will be Charity-Owned Life Insurance (CHOLI). With CHOLI, your nonprofit becomes the owner and beneficiary of a life insurance policy. This can happen in two ways: a donor can transfer ownership of an existing policy to your organization, or you can purchase a new policy for a key supporter (with their full consent, of course). In either case, your nonprofit pays any remaining premiums. When the insured person passes away, your organization receives the full death benefit, tax-free. This provides a significant future gift from a supporter’s relatively small premium payments, creating a powerful financial tool for your long-term goals.
A successful program is built on clarity and relationships. First, create clear internal guidelines for accepting policies and managing premiums. Next, focus on educating your supporters. Use simple language and clear examples to show them how their gift can make a lasting impact. It’s also smart to build a network of trusted professionals. Connecting with experts in estate planning and financial advising can lead to referrals and provide your donors with the guidance they need. Finally, always celebrate your donors. Sharing their stories (with permission) in newsletters or at events not only honors their generosity but also inspires others to give.
What’s the real difference between a nonprofit owning my policy versus me just naming them as a beneficiary? When a nonprofit owns the policy, they have full control. This means the gift is irrevocable—it can't be changed later—which gives the organization security to plan for the future. More importantly, if it's a whole life policy, the nonprofit gains access to the growing cash value, which becomes an asset they can use or borrow against. Simply naming them as a beneficiary is a wonderful gesture, but it isn't a committed gift and doesn't provide them with that immediate, growing asset.
What happens if a donor who agreed to cover the premiums can no longer pay them? This is a critical point to plan for. If a donor stops paying, the nonprofit has a few options to prevent the policy from lapsing. It can use its own funds to cover the premiums, find another donor to take over the payments, or use the policy's own cash value to pay for itself for a time. In some cases, the organization might decide to surrender the policy for its current cash value if that best serves its immediate needs. This is why having a clear internal policy from the start is so important.
Can our nonprofit use the money in the policy before the donor passes away? Yes, and this is one of the most powerful features of using a permanent life insurance policy. As the policy builds cash value, that value becomes an asset on your nonprofit's balance sheet. Your organization can take loans against that cash value to fund projects or cover unexpected expenses, all while the policy's death benefit remains intact. This turns the policy into a living financial tool, not just a future payout.
As a donor, how is my tax deduction calculated? Is it for the full death benefit amount? Your tax deduction is not based on the future death benefit. When you transfer ownership of an existing policy, your immediate deduction is typically calculated based on the policy's fair market value or your cost basis, whichever is less. If you continue to make donations to the nonprofit to cover the premium payments, those annual contributions are generally tax-deductible as well. It's a great way to get an ongoing tax benefit while building a major future gift.
This strategy sounds like it's for huge organizations. Can smaller nonprofits benefit from this too? Absolutely. This strategy is about the scale of the gift, not the scale of the organization. For a smaller nonprofit, a single life insurance gift can be transformative, providing a level of future funding it might never receive otherwise. The key isn't your organization's size, but your willingness to build strong relationships with supporters and partner with financial professionals who can help you manage the process correctly.
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