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Nonprofit Fundraising Potential of Life Settlements

By July 8, 2015March 12th, 2019No Comments

Nonprofits Struggle to Boost Coffers While Overlooking the Fundraising Potential of Life Settlements

It’s a known fact that nonprofit organizations were among those hit hardest during the recent economic downturn.  Some charities may never fully recover from the six or more years that were lost opportunities for investing new donor funds and building cash for operating expenses.

So it’s not surprising to learn that the number one challenge facing nonprofit leaders in 2015 is difficulty in raising money, according to the National Council of Nonprofits.  The organization noted that this trend is especially true in light of nonprofits’ second biggest challenge — the ever-increasing social needs in their communities.

According to a survey conducted in 2014 by the Nonprofit Finance Fund on the state of the sector, the majority of nonprofits surveyed reported having less than three months of operating cash on hand.

Yet, in spite of fundraising challenges and struggles with sufficient operating capital, charities are overlooking valuable opportunities to increase revenues by pursuing life settlements for donated life insurance policies that qualify. The reason?  Most nonprofits simply lack awareness about this topic.

While it is no secret that the secondary market for unwanted life insurance policies has been in existence for approximately 20 years, awareness about life settlements continues to lag in the nonprofit industry. With 42 of all 50 states now regulating the industry, consumers and nonprofit organizations are afforded comprehensive protection and ample oversight.  In today’s economic environment, it seems illogical that charities would not want to evaluate the idea of raising money through life settlements for donated policies that are on their books.

A nationwide study of challenges facing nonprofits conducted by CompassPoint in 2013 helped to shed some light on the reasons why fundraising is still down. The survey found that 75% of nonprofit directors say board member engagement in fundraising is insufficient, and 79% of nonprofit executives lacked competency to secure gifts. Given these statistics, it’s clear that one of the first places that nonprofits will want to focus as they work to shore up their fundraising muscle is to fill open board seats with financial and insurance professionals who have expertise in life settlements.

As nonprofits begin to (1) engage professionals who are knowledgeable about life settlements, (2) appoint them to board positions, and (3) conduct fundraising campaigns focused on donated life insurance policies, the next step is to assess the number of existing life insurance policies owned by the charity.

There is no doubt that many nonprofits are sitting on large stockpiles of donated life insurance policies without knowing their potential value in the secondary market. For example, a white paper summarizing a 2009 study of nonprofits published by the Planned Giving Design Center found that 56% of the 266 charities responding to the survey, stated they owned donated life insurance policies with a combined estimated death benefit of $487 million. Some nonprofits responded that once gifts of life insurance are received, they are immediately surrendered for their cash value. While 74% of the nonprofit respondents stated that they conducted annual policy reviews, others stated they rarely conduct policy reviews, and some even said they conducted policy reviews “when I think about it.”

While awareness of life settlements among the nonprofit sector may be lagging, at least one institution of higher education is stepping in to fill that void. Texas Tech University, home of the nation’s largest graduate program in personal financial planning, has developed a curriculum for the Graduate Certificate in Charitable Financial Planning that includes a course entitled, Using Life Insurance in Charitable Planning. This presentation, available on SlideShare.net, contains a section that states, “Because of the ‘life settlement’ market, policies may have value far beyond traditional calculations.”

Given the opportunities available for nonprofits as it relates to donated life insurance policies, it behooves executive staff and board members to rethink their fundraising strategies. Below are suggested steps for nonprofits that want to incorporate life settlements as a critical component of their fundraising efforts:

  • Appoint to the board a respected insurance professional knowledgeable about life settlements who can provide strategic and objective expertise on life settlements and guide the annual review of policies. (It is recommended that this board member not be directly involved in the life settlement transaction due to the appearance of a conflict of interest.)
  • Conduct an inventory of the number of life insurance policies that already have been donated.
  • Work with licensed insurance professionals who will agree to volunteer their time to conduct annual reviews and/or facilitate life settlement transactions for any policies that may qualify.
  • If the charity does not currently accept donated life insurance policies, consider revising the charity’s gift acceptance policy to include the donation of life insurance policies as a major component of the nonprofit’s fundraising efforts.
  • Develop an FAQ about life settlements to educate prospective donors about the fact that their policy may have cash potential beyond what they may have imagined, and that a life settlement might enable them to witness the effect of their generosity while they are still living.
  • Institute new procedures wherein newly donated life insurance policies that meet certain criteria are automatically given a preliminary estimate by a life settlement provider regarding the policy’s settlement value in the secondary market.

If you have questions about life settlements or about ways that Abacus Settlements can assist nonprofits in maximizing the potential of donated life insurance policies, contact us at (615) 732-6241, or visit us at https://abacuslifesettlements.com

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