•
Donor Benefits
- Making a donation to his/her favorite philanthropic organization
without depleting cash reserves or losing income-producing
assets;
- Getting a tax deduction for the fair market value (selling
price) of the life insurance policy instead of only the
cash surrender value;
- Being able to see their donation put to use during their
lifetime rather than after their death if the organization
did not utilize a Life Settlement;
- Eliminating the requirement of continued premium payments
on
the policy;
- Removing a taxable asset from their estate if the policy
was
individually held.
• Organization
Benefits
- Receive a donation from a Donor who may not have otherwise
been in a position to contribute at all;
- Collect a lump sum of cash today instead of having to
wait for the insured's death to collect the proceeds;
- Not having the financial burden of paying premium payments
to keep the policy in force;
- Providing a valuable option to the Donor that furthers
their tax and estate planning objectives and invites the
opportunity for future/additional gifts.
- Improved annual budget forecasting ability
• How Does a Life Settlement Work?
Once the Donor is considering gifting a life insurance policy
to the organization, the life insurance policy should be appraised.
Typically, a Life Settlement Broker can determine its eligibility
for a life settlement and will undertake it to obtain the
highest offer for the policy.
The value of a life insurance policy is determined by a number
of factors, including, but not limited to, the age and medical
condition of the insured, type of insurance policy, rating
of the issuing insurance company and amount of premium payments
to keep the life insurance policy in force. Most types of
insurance policies can qualify, including universal, whole
life, and converted term. When a mutually agreed upon price
is determined for the life insurance policy, the organization
that now owns the policy is paid a lump sum in cash, the ownership
and beneficiary rights are transferred to the purchaser. All
future premium payments are the responsibility of the purchaser
and upon the death of the insured, the death benefit is payable
to the purchaser. The cash proceeds from the Life Settlement
may be used by the organization in any way – there are
no restrictions regarding the use of the funds. The money
may be invested or spent on current projects. Because some
Life Settlement Brokers offer fundraising support, it makes
sense for organizations to partner with them for their expertise.
• Life Settlement
Regulations
As of June, 2003, eighteen (18) states have enacted statutes
addressing the sale of life insurance policies insuring non-terminally
or chronically ill individuals and an additional seventeen
(17) states have laws that only regulate the sale of life
insurance policies insuring terminally or chronically ill
individuals. Fifteen (15) states do not regulate the transaction
at all.
• Donated Life
Insurance Policies
In addition, most philanthropic organizations currently own
life insurance policies that have been donated in the past.
If there is a need for funds sooner rather than later or if
the premium payments are becoming burdensome, the organization
can utilize Life Settlement transactions to sell those policies
for lump sums of cash and put the money to work right away.
Life Settlements are powerful arrows in the quivers of
professional fundraisers -
- Generating money for their organizations by encouraging
current gifting of life insurance policies.
- Turning already donated life insurance policies into cash.
###
The author
Jolene D. Fullerton, practicing attorney for eighteen (18)
years and former Director and Vice President of the Viatical
and Life Settlement Association of America, the industry's
trade association, is General Counsel for a leading Life Settlement
Broker company, First Secured Life, LLC.
Website: www.firstsecuredlife.com/non-profit.html
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