Q&A: Including Churches as Insurance Beneficiaries

Can a church be named as a beneficiary under a life insurance policy?

A member of our church has asked if he can purchase a life insurance policy on his life and name our church as a beneficiary. He plans on naming his wife as the primary beneficiary, but would like to name our church as the alternate beneficiary in the event that his wife dies before he does. So, the basic question is whether it is legal for a church to be named as a beneficiary under a member’s life insurance policy?

Yes, a member can name a church as a primary or alternate beneficiary under a life insurance policy. Here are several points to consider:

  • There are several ways for church members to make gifts to their church using life insurance, but naming the church as a primary or alternate beneficiary is the simplest. The member continues to own the policy, and pay the premiums, and fills out a “change of beneficiary” form that names the church as a beneficiary.
  • In some cases, a member may want to name the church?as the sole beneficiary. This can be a way for a member to make a much larger gift to his or her church than would otherwise be possible. This can be as simple as purchasing a term insurance policy online, naming the church as the sole beneficiary. Some members have made substantial donations to their church at the time of death by using this option, at a relatively modest cost.
  • In other cases, a member may want to name a spouse or children as the primary beneficiary, and a church as an alternate beneficiary. In such cases the church will receive the insurance proceeds only if none of the primary beneficiaries survive the donor.
  • Making a charitable gift of a life insurance policy to one’s church has a number of advantages. The donor remains in control of the insurance policy. This means that the donor can change beneficiaries at any time, for any reason. Or, the donor can terminate the policy if, for example, he or she no longer can afford the premiums. The donor, as the owner of the policy, also can access the policy’s cash value.
  • Donors who name their church as a beneficiary under a life insurance policy that they own cannot deduct their premium payments as a charitable contribution. Further, since they own the policy, the policy’s value will be included in their estate for estate tax purposes. However, they may be able to claim an estate tax charitable contribution deduction.

There are other ways for church members to use life insurance for the benefit of their church. These include naming their church as the recipient of dividends under the policy, transferring ownership of the policy to their church, and donating a new life insurance policy to their church. Each of these options has advantages and disadvantages, and some require careful planning to achieve the desired benefits. Church members interested in pursuing these or other options should consult with a life insurance agent or an attorney.

Richard R. Hammar is an attorney, CPA and author specializing in legal and tax issues for churches and clergy.

This content is designed to provide accurate and authoritative information in regard to the subject matter covered. It is sold with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional service. If legal advice or other expert assistance is required, the services of a competent professional person should be sought. "From a Declaration of Principles jointly adopted by a Committee of the American Bar Association and a Committee of Publishers and Associations." Due to the nature of the U.S. legal system, laws and regulations constantly change. The editors encourage readers to carefully search the site for all content related to the topic of interest and consult qualified local counsel to verify the status of specific statutes, laws, regulations, and precedential court holdings.

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