How Churches Can Benefit from Charitable Contributions Through Life Insurance

Discover how charitable contributions through life insurance can provide significant benefits to churches and their members.

Last Reviewed: January 22, 2025

Q: A member of our church has asked if he can purchase a life insurance policy 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 predeceases him. The question is whether it is legal for a church to be named as a beneficiary under a member’s life insurance policy.


Yes, a church can be named as a primary or alternate beneficiary under a member’s life insurance policy. Here are important considerations:

1. Simplest Way to Use Life Insurance for Charitable Contributions

  • Members can name the church as a beneficiary using a “change of beneficiary” form. The member retains ownership and responsibility for paying premiums.
  • This method ensures the member remains in control of the policy while making a meaningful charitable contribution.

2. Naming the Church as the Sole Beneficiary

  • Some members choose to make the church the sole beneficiary, allowing for potentially larger contributions than otherwise possible.
  • Purchasing a term life insurance policy specifically for this purpose is a cost-effective option for significant giving.

3. Alternate Beneficiary Designation

  • A member can name their spouse or children as primary beneficiaries and the church as an alternate beneficiary.
  • This ensures the church receives the proceeds only if the primary beneficiaries predecease the donor.

Advantages of Charitable Contributions via Life Insurance

Using life insurance to make charitable contributions offers several benefits:

  • Flexibility: Donors can change beneficiaries or terminate the policy if their financial situation changes.
  • Access to Policy Value: Donors retain control over the policy, including access to its cash value.
  • Estate Tax Deductions: Donors may qualify for estate tax charitable contribution deductions if the policy’s value is included in their estate.

Limitations to Consider

  • Premium payments are not tax-deductible as charitable contributions if the donor retains ownership of the policy.
  • The policy’s value will be included in the donor’s estate for tax purposes.

Other Ways to Use Life Insurance for Charitable Contributions

Members may consider additional options for leveraging life insurance to benefit their church:

  • Dividends: Name the church as the recipient of dividends under the policy.
  • Policy Ownership Transfer: Transfer ownership of the policy to the church, enabling premium payments to become tax-deductible.
  • New Policy Donation: Donate a new policy to the church, providing a straightforward way to contribute.

Consulting Professionals

Each method for using life insurance as a charitable contribution has advantages and disadvantages. Members interested in these options should consult with a qualified life insurance agent or attorney to ensure proper planning and execution.

FAQs

1. Can a church be named as a sole beneficiary?

Yes, naming a church as the sole beneficiary allows members to make substantial contributions and provides flexibility in ownership and control of the policy.

2. Are premium payments tax-deductible?

No, premium payments are not tax-deductible if the donor retains ownership of the policy.

3. What happens if the primary beneficiaries outlive the policyholder?

If a church is named as an alternate beneficiary, it will receive the insurance proceeds only if the primary beneficiaries predecease the policyholder.

4. Should members consult professionals before proceeding?

Yes, consulting a life insurance agent or attorney is essential to understanding the tax and legal implications of using life insurance for charitable giving.

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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