Helping your alma mater: 3 life insurance moves

By Allen Wastler
Allen Wastler is a former financial journalist with over 30-years of experience, including time at CNBC, CNN, and Knight-Ridder Newspapers.
Posted on Feb 28, 2018

So how is your old college faring in fundraising lately? Odds are, not well.

Less than 1 percent of the nation’s colleges accounted for nearly 30 percent of the roughly $43 billion contributed to schools this past year, according to the latest survey from the Council for Aid to Education.

So how can you help your alma mater?

Straight donations are the most direct and immediate way to help, of course. But here are three other options. Not surprisingly, coming from us at MassMutual, they involve whole life insurance. And these alternatives could offer some attraction for certain donors.

Indeed, for those who want to stay anonymous, either from shyness or a reluctance to subject their giving decisions to second-guessing by family members or the public, charitable giving via life insurance holds particular appeal. It’s typically not involved in the probate process and generally there is no public record.

The school as beneficiary

Making your old college a beneficiary of your whole life insurance policy offers several advantages:

  • It’s possible to donate a larger gift than you might otherwise be able to give currently. For example, for about $110 a month, a healthy 40-year-old female can purchase a policy with a $100,000 death benefit. That is likely a lot more than she’d normally be able to donate immediately to her school.
  • You can opt to have the policy death benefit paid entirely to the school or split with other beneficiaries.
  • As long as you are alive, you retain access to all of the policy’s features and benefits. So if your circumstances change, or you wish to support other schools or charities, you can simply change the beneficiaries or the proportion of the benefit they each should receive.

There are some other consequences to consider:

  • The charity doesn’t get your gift until you die.
  • There is no income tax deduction for you.

Annual gifts from your policy

You may choose to receive any annual dividends your whole life policy earns in cash, and then donate them to the college or university of your choice each year. It is possible to use your dividends this way whether or not you opt to make the school a beneficiary of your policy.

The advantage of this system is that you can make recurring donations without affecting your household budget. But you should not rely on dividends to fund annual pledges or other commitments, as dividends on life insurance policies aren’t a certainty. For example, while MassMutual has paid dividends to eligible participating policyowners every year since 1869, dividends are not guaranteed and if paid may vary from year to year. Also, in certain situations dividends are taxable.

Giving a paid-up policy

You can make an immediate, one-time gift of a whole life policy that’s paid-up (i.e., where all the premium payments are complete). This may be a life insurance policy you already own but no longer need. With a policy in place, you can then change ownership to the college or university, thereby making an outright gift.

This kind of gift makes you eligible for a tax deduction. For policy amounts above $5,000, the deduction is the lower of the policy’s cost basis (usually premiums paid into the policy) or fair market value on the date of transfer. An IRS-approved appraiser makes the determination (for a fee).

And keep in mind that once you’ve made the gift, it’s irreversible. It will be the school’s decision how to best use it. And the school can either cash it in immediately or keep it for later.

You can donate a policy that’s not paid up as well, although schools typically cash such policies in immediately for the cash value.

Of course for any major financial move, whether it’s donating to your old alma mater or making any other sort of charitable move, it may be a good idea to consult a financial professional, depending on your particular circumstances.

More Information:

Insurance and charitable giving

Retirement catch-up moves

Retirement Income Calculator

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The information provided is not written or intended as specific tax or legal advice. MassMutual, its employees and representatives are not authorized to give tax or legal advice. You are encouraged to seek advice from your own tax or legal counsel. Opinions expressed by those interviewed are their own, and do not necessarily represent the views of Massachusetts Mutual Life Insurance Company.