14.11 Life Insurance

You may deduct the value of a life insurance policy if the charity is irrevocably named as beneficiary and you make both a legal assignment and a complete delivery of the policy. A deduction may be disallowed where you reserve the right to change the beneficiary.

The amount of your deduction generally depends on the type of policy donated. Your insurance company can furnish you with the information necessary to calculate your deduction. In addition, you may deduct premiums you pay after you assign the policy.

Caution

Split-Dollar Insurance Arrangements

No deduction is allowed for giving a charitable organization money with the understanding that it will be used to pay premiums on life insurance, annuities, or endowment contracts for your benefit or that of a beneficiary designated by you.

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Deducting premium payments on donated policy.

If you assign a life insurance policy to a charity and continue to pay the premiums, you generally may deduct the premiums. However, in states where charities do not have an “insurable interest” in the donor’s life, the IRS may challenge income tax and gift tax deductions for the premium payments. The IRS took this position in a private ruling interpreting New York law. In response, New York amended its insurance code to allow individuals to buy a life insurance policy and immediately transfer it to a charity. The IRS then revoked the earlier ruling but it did not announce a change in its position. Thus, the IRS may challenge premium deductions of donors in other states where a charity’s insurable interest is not clearly provided by state law.