As the end of the year approaches, charitable giving becomes an important part of financial planning conversations.
Advisors are helping clients evaluate donations, revisit financial goals, and explore ways to support the organizations and causes that matter most to them.
But one potential source of charitable funding may be overlooked: an existing life insurance policy.
At Abacus Life, we believe policies that no longer serve their original purpose may present an opportunity to support new financial priorities, including charitable giving.
Looking Beyond Traditional Charitable Donations
When clients think about charitable giving, they often consider donating cash, securities, or other assets.
However, an existing life insurance policy may also play a role in their charitable giving strategy.
A client may have purchased coverage decades ago for income replacement, estate planning, or business protection. Over time, those needs may have changed, leaving them with a policy they no longer need.
Rather than surrendering or lapsing the coverage, eligible policyholders may have another option worth exploring.
Turning an Unneeded Policy Into Charitable Funding
A life settlement allows a policyholder to sell an existing life insurance policy to a third party in exchange for a lump-sum payment.
For qualifying policies, the proceeds may exceed the policy’s cash surrender value while eliminating future premium obligations.
Those funds can then be redirected toward other financial priorities, including charitable contributions.
For example, a client who no longer needs a large life insurance policy could potentially use a portion of the settlement proceeds to support a favorite nonprofit, establish a charitable giving fund, or contribute to a cause that reflects their personal values.
Instead of maintaining coverage that no longer fits their financial plan, the client may be able to put that policy’s value toward something meaningful today.
Why Charitable Giving Deserves a Place in Policy Reviews
As advisors conduct year-end planning conversations, charitable goals can be an important reason to revisit existing life insurance.
Consider asking:
- Does the client still need the original death benefit?
- Has the client’s estate or legacy plan changed?
- Are ongoing premiums still justified?
- Does the client have charitable organizations they would like to support?
- Could a life settlement help fund those goals?
A policy review can help determine whether keeping the coverage, donating the policy itself, or exploring a life settlement better aligns with the client’s objectives.
These approaches have different financial and tax considerations, so advisors should coordinate with qualified tax and legal professionals before recommending a strategy.
Creating an Impact During the Client’s Lifetime
Traditional life insurance planning often focuses on providing financial support after the insured passes away.
But for clients who no longer need their coverage, a life settlement may create an opportunity to make a difference during their lifetime.
Settlement proceeds could help clients support charitable initiatives, contribute to community organizations, or participate in philanthropic efforts they can see firsthand.
For clients whose financial priorities have shifted from wealth protection to giving back, this may offer another way to align existing assets with their goals.
Make Charitable Giving Part of the Year-End Conversation
Year-end planning is an opportunity to evaluate more than investment portfolios and tax strategies.
It is also a chance to make sure clients are using their existing assets in ways that reflect their current priorities.
For some, an unneeded life insurance policy may represent an additional source of liquidity that could help support meaningful charitable goals.
Before a client surrenders or lapses a policy, consider whether its potential value could help make a difference elsewhere.
Discover What Your Client’s Policy Could Be Worth
If your client has an existing life insurance policy that may no longer serve its original purpose, a policy valuation can help identify available options.
