Are You Thinking About Cancelling Your Life Insurance Policy? Maybe Donate It Instead.

Imagine, for a second, that you are in your fifties. You bought a policy years ago, at the same time that you completed your financial plan. The Life Insurance policy was purchased, either as a solution to the dream of a perfect life, or in anticipation of a relationship that was supposed to turn into a marriage. Or on the flip side, you have a policy left over from a divorce.

In the same vein, you can picture yourself in your 60s or 70s. You are watching your children thrive; they are achieving financial independence. It is at that point that you ask yourself a simple question: why do I have this life insurance policy? If you find yourself holding a policy you no longer need, your instinct might be to surrender it for its cash value.

However, before you cancel the policy, before you even make a phone call, I would ask you to consider a far more impactful alternative: donate it.

A Gift of Life Insurance has three benefits. The first is obvious: it is an affordable, high-impact way to support a charity close to your heart. Secondly, it transforms an unused or underutilised financial asset into a legacy. Which is often an underappreciated value. For example, if you have a term policy that has $1,000,000 in face value and you are 53, you could reduce the policy to a face value of $25,000 and pay $86.40 per month.

The great thing about this strategy is its simple guarantee: it will always provide more money upon death than the $86.40 would have provided in life. This is true on the first day, and the last day. There are very few things that provide that type of guarantee in life. No other asset class can provide that guarantee.

With that being said, there is a third benefit: significant strategic and tax advantages. Depending on how the policy is transferred, the donor can receive immediate tax receipts for the policy's cash value and ongoing premium payments to apply against your present tax return, or secure significant tax relief for your estate's final tax return. Thus, this provides three good reasons for taking a moment to have a conversation with a financial advisor about the options that you might have.

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