Forget bake sales and car washes (although, hey, we still love those classics). Have you ever felt like your fundraising toolbox is getting a little…tired? We've all been there. But what if there was a hidden gem, a strategy that could boost your bottom line with the current donor base you already have?
In this article, we'll shed light on the often-overlooked superpower of life insurance gifts. We'll break down the "hows" and "whys" in a way that's easy to understand and leave you feeling confident and equipped to chat with your donors about this powerful giving option. So, ditch the fundraising fatigue and get ready to discover a strategy that's as strategic as it is impactful.
Most people invest in life insurance to provide a safety net for their family in the event of their death. However, once children have grown up and spouses have passed away, individuals may not feel the need to keep this security blanket.
“Since life insurance provides a death benefit several times larger than the premium paid, it is a great way to boost your charitable giving,” says Chris Abrams, founder of Abrams Insurance Solutions, in an article by Forbes.
Donors who have decided that their family will be well taken care of without the security of their life insurance policy are free to use that money to support their favorite cause. Nonprofit leaders who have done their homework and built relationships with these donors may benefit from a donated life insurance policy supporting their organizations.
There are several benefits to donating a life insurance policy:
It is helpful to understand a few common terms before diving into life insurance policy donations.
Permanent life insurance: An insurance policy that covers an individual until their death, provided the premiums are paid. (It’s different from term life insurance, which offers coverage for a defined period of time such as 10 or 20 years.)
Death benefit: The amount of money paid to the beneficiary when the insured dies.
Owner: The individual who purchased the life insurance policy and is responsible for managing and paying the premiums.
Insurance premium: The amount of money an individual or business pays to keep the policy active.
Insured: The person whose life is covered by the insurance contract.
Beneficiary: The recipient of the death benefit, which is paid out when the insured dies.
While it is possible to donate both term and permanent life insurance, permanent is more advantageous for the nonprofit organization. A term life policy could potentially expire while the insured is still living, meaning there will be no death benefit. A permanent life insurance donation ensures a donation will be made no matter when the insured passes, provided the premiums have been met.
The process of donating a life insurance policy to a nonprofit organization depends on the type of policy and how it is initially set up. Here are the most common scenarios:
This is the most straightforward and common approach to donate a life insurance policy. This method also gives the donor access to any cash value accumulation while living. The organization will not receive the money until the death benefit is paid out upon the death of the insured.
This is a great option for individuals whose family’s are taken care of, and they no longer need that lump sum. At the time of death, the nonprofit will receive the death benefit and the individual’s estate will receive the tax benefits. An individual can also name multiple beneficiaries if they would like the payout to be split between recipients.
This approach involves a donor setting up a new policy and making the premium payments. The nonprofit will receive the death benefit upon the death of the insured.
Instead of naming a nonprofit organization as the beneficiary, the donor could choose to transfer ownership of an existing policy to a nonprofit. This transfer gives the nonprofit control of the contract. The donor can claim an immediate charitable contribution tax deduction for transferring ownership to the nonprofit. If future premiums are owed and paid by the donor, they can claim those as tax deductions.
The nonprofit has two main options in this case: It can choose to name itself as the beneficiary and receive a tax-free payout upon the death of the insured. If it is a permanent life insurance policy with cash value, the organization can choose to surrender the policy immediately and receive the current cash value.
Note: Before taking ownership of an existing life insurance policy, the nonprofit should be aware of any remaining premiums owed. These premiums represent expenses the organization will incur before the death benefit is paid.
Instead of the organization absorbing these expenses, the donor could also make a pledge that would cover the expenses associated with the policy. That way, there are no additional expenses for the nonprofit, but it still receives the full death benefit. These risks should be taken into consideration when dealing with this type of gift.
If the donor has begun to receive dividends from a life insurance policy, they can choose to donate those to the nonprofit organization. In this situation, the donor retains ownership of the policy but can claim the donation as a tax deduction within applicable tax laws.
To ensure the most optimal tax deductions for the donor, it is important for organizations to work with a nonprofit financial advisor and tax consultant.
There are many reasons why it is difficult to talk about death. But studies show that people are open to these conversations. According to a national survey by the Conversation Project, 92% of Americans say it’s important to talk about end-of-life care, and 53% would be relieved if a loved one started the conversation.
Additionally, according to USA Today, 52% of Americans are covered by some type of life insurance (as of January 2024). If they have taken the steps to purchase a life insurance policy, that shows they are open to these types of discussions and would like to plan for the future.
If their children and/or spouse are well established and taken care of at this point in their life, the individual may not feel the need to provide that money for their security. If they have decided that the death benefit isn’t needed to keep their family stable, they may be excited by the idea of it helping their favorite organization!
As people get older, it is natural to consider the legacy they will leave. Many people want to make an impact but don’t know what that looks like or what to do. Give them the option of fulfilling their legacy by helping your mission, something that will last long after they’re gone!
You also don’t want to deny the donor any of the great benefits that come along with helping others. The Cleveland Clinic reports that giving even boosts your physical and mental health. Benefits include:
Why not let the donor take advantage of these benefits now? Once they know their legacy plan is in place and helping their favorite cause, your donors will experience all the tremendous benefits associated with giving.
By avoiding talking to your donors about life insurance policy donations, you are choosing fear over helping your mission.
Brene Brown, author and researcher on vulnerability, states in her book, Dare to Lead,
“Choosing our own comfort over hard conversations is the epitome of privilege, and it corrodes trust and moves us away from meaningful and lasting change.”
Don’t let your fear hold your organization back. By educating your donors on every option they have to support your mission, you unlock great potential for both the donor and your organization.
By encouraging your supporters to donate life insurance, you can generate significant funds and make a huge impact on your organization’s mission.
Here are 4 effective ways to educate donors about donating life insurance policies.
This is an example of how your prep work can pay off in the long run. Create a rack card or brochure that you can give to local companies in your community. This handout should highlight the benefits of planned giving and donating gifts such as life insurance policies. Highlight the impact a gift like this can make on your mission!
Make sure to provide an overview of what your organization does, who it helps, and why it’s important. Sharing stories will allow the donor to better connect with and remember your organization’s impact.
This information can be distributed to funeral homes, insurance companies, and estate lawyers. These professionals deal with death on a regular basis and are there to help guide people. Sometimes, an individual will ask for their recommendation on where to make a donation. If you take the time to build a relationship with these companies and give them the materials to make their jobs easier, you will be at the top of their mind when they make a recommendation to their clients.
A great way to encourage others to make a life insurance policy donation is by showing social proof. Publications such as the book Influence: The Psychology of Persuasion by renowned psychologist Robert Cialdini, Ph.D. highlight the power that social proof has on individuals. In his book, Cialdini states, “We view a behavior as more correct in a given situation to the degree that we see others performing it.”
Creating a giving society is a great way to honor major donors. According to Philanthropy Daily, nonprofits that have a donor club and consider it an important part of their fundraising efforts have an average per-donor contribution level 49.6% higher than those that don’t!
So celebrate when you receive a donation of a life insurance policy and shout it from the rooftops! Share stories about the donor and the work that was done with their money in your supporter newsletter, add bricks/naming trees in your lobby, honor them at your fundraisers, etc. Anywhere that you can talk about this type of donation, do it. Sharing social proof will continue to familiarize and disarm the donor’s brain from this new type of donation.
Once you have begun to receive donations of life insurance policies, you should consider hosting a memorial event once a year for the families of past donors. If the donor is still alive, this is a great chance to celebrate them and nurture their relationship further! Allow them to invite their friends and family so they can learn about the legacy they are leaving. Having your board members there to mingle is a great way to show that your organization truly appreciates them.
If the donor has passed away, invite their immediate family members each year to this event. Most people would love to continue to remember and honor their loved ones in this way. This event doesn’t have to be anything fancy or expensive. Providing light snacks and refreshments with a short program highlighting donors and the impact you’ve made with their help will go a long way.
Holding this event has two main goals.
The first is to allow the donor’s family time to celebrate the life and gift that was made by their loved one.
The second is to nurture this new group of potential donors! Many people will feel compelled to make a donation in the name of the deceased or may even fall in love with the idea of donating their own life insurance policy. Have your development team available to talk with donors, build relationships, and answer questions about potential donations.
It’s important to include life insurance policy donations in your overall fundraising and communications plan. Most donors don’t know it is an option, let alone all the tax benefits. It is your job to educate your donors on every opportunity they have to support your mission. The Rule of Seven refers to the fact that modern brains need to interact with something seven times before it will take action. And remember that every donor isn’t seeing every piece of content you put out. Don’t be shy about spreading the word!
Mention it on your remit envelope, on your website or landing page, and in your donor welcome series. Highlight it on your Form 990 when reviewing it with donors and periodically at board meetings, fundraisers, and community outreach events. If you don’t share about it, your donors won’t be able to act because they won’t know about the possibility.
Here are 6 tips to attract more life insurance policy donations to your organization.
Life insurance policy donations will most likely come from your biggest fans. Take some time to look through your CRM or donations management system to identify donors that have been giving to your organization for several years. If their donation is at a high level or has increased over time, even better!
These are prime candidates for you to begin nurturing. If you don’t yet have a personal relationship with these people, it may be time to start. Invite them to tour an area of your organization or even meet them for coffee to learn more about their connection to your cause.
You can also send these donors a short email series introducing them to the idea and impact others have made through planned giving and life insurance policy donations. Or send a mailing with a powerful story about these types of donations with simple instructions to do it themselves. These donors have already proved they want to support your mission; now make sure they know all their options!
The reason segmenting your list is important is because this isn’t necessarily “first date” talk. Unless your donor brings it up the first time you meet, we don’t suggest making this your first ask. This opportunity should be discussed with donors you have a meaningful, often long-term relationship with.
Your donor should hear about this donation option at your organization many times before you actually make your ask. By including it in your overall fundraising plan (see below for more), this unique donation opportunity will already be planted in their brains. After hearing about it several times, their brain will start to tag the idea as “familiar” and be more receptive to it.
There is a time and a place for this discussion. A loud, public setting like a fundraiser or board meeting isn’t suitable for this caliber of ask. If possible, having these conversations in person can add a sense of humanity, as opposed to virtually or over the phone. You should choose a private setting where the donor is comfortable and relaxed. There is also some research that suggests having conversations with food fosters relaxation and openness. Remember to take into account religious holidays and cultural differences that may require a different date or setting.
You do not want to be unprepared when a donor is ready to discuss this. Your donation process should be documented for both the development professional and the donor. Have easy-to-read instructions for the donor to follow to make the donation, set up a landing page, and have your stewardship plan in place.
Being prompt is key to not losing an amazing gift like this. Include your nonprofit financial advisor in these discussions so they are prepared and can advise you on processes and best practices. Don’t have a nonprofit financial advisor yet? Schedule a consultation today to get started!
It is important that everybody be in the right state of mind for this discussion, both the donor and the development staff. Even though you are talking about somebody else’s mortality, this can bring up difficult feelings and thoughts for you too. Remember to stay focused and guide the conversation back to the cause (see below for more on this). You have one goal: to help further your mission by educating donors on how they can help!
Everybody has a different attitude, belief, and relationship with death. Some people are open to discussing it; some people shut down when it is brought up. It is up to you to read your donor. Pay attention to their nonverbal cues, such as body language, tone of voice, eye contact, or changes in behavior.
As we said above, your donor should hear about this type of donation several times before you ask them. Even if they are the ones that initiated the meeting, remain compassionate and open. Listen to their needs, not yours. Your job is to provide the donor the education they need to make an informed decision on their charitable giving. The rest is up to them!
Remain engaged and show that you are listening by making eye contact, nodding, and smiling. You can use this as an opportunity to learn more about the donor and create an even deeper relationship with them. There is bound to be vulnerability in these discussions, and keeping a safe and open environment is key to a smooth process.
It can be easy to get distracted from why you are having this conversation: to support your cause. After you have listened (a lot) and it is your time to talk, remember to guide the conversation back to the mission. How will this major gift make an impact on your organization and the mission you serve? Share specific stories and examples of how you will use this money to help make the world a better place. Remind donors about the legacy they could leave!
When you are talking with your donor, use clear, honest language. Don’t use weird euphemisms or talk in circles because you don’t want to use a word like “death”. If you have your process clearly identified, have qualified your donor and prepared them for this discussion, you don’t need to beat around the bush.
You should continue to monitor how the donor is feeling throughout the entire conversation. If at any point they seem uncomfortable or something seems off, stop the conversation.
You can say, “You know, I also wanted to tell you about this cool thing we’ve been doing. Would you like to learn more about how this program is helping our mission?” This gives the donor an easy way to switch the conversation to a different topic but still deepen their connection with the organization.
By educating your donors about the benefits of charitable donations of life insurance policies, you can unlock a major revenue stream. Don’t let fear hold your organization back; instead, embrace hard conversations, knowing your organization will grow because of it.
If you are currently looking for help with financial planning, contact us. We are happy to schedule an introductory meeting at your convenience.
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Disclaimer:
This blog is for informational purposes only and is not meant as financial, legal, or tax advice. Please seek professional advice from qualified tax, legal, and/or financial professionals before making any financial decisions.
Carnegie Investment Counsel (“Carnegie”) is a registered investment adviser under the Investment Advisers Act of 1940. Registration as an investment adviser does not imply a certain level of skill or training. For a more detailed discussion about Carnegie’s investment advisory services and fees, please view our Form ADV and Form CRS by visiting: https://adviserinfo.sec.gov/firm/summary/150488.