Life insurance for charitable donations in Australia

Overview

Australians are some of the most generous people on earth.

Known for their spirit of community and beliefs in equity, Australians give their time and money toward efforts to better their communities, country, and the world.

Are you amongst the majority of Australians who donate to a charity or non-profit organisations?

Or, are you not in a position to donate now, but would like to do so in the future?

No matter your current situation, life insurance policies can offer great potential and flexibility in terms of giving power.

So, for those who are interested in continuing the Australian traditions of equity and community and want to contribute by maximising their potential charitable donation, consider a life insurance policy as the vehicle to accomplish that goal.

Giving power at its pinnacle

While many Australians donate throughout their lives, most contributions come from the wealthiest Australians.

This statistic makes sense as wealthier people have more money to give, but it does not consider the giving power of those who can invest in life insurance as a means of giving back or paying-it-forward.

For many, the pinnacle of their potential for charitable opportunities is through life insurance.

Life comes with many day-to-day and long-term expenses -- and, unfortunately, the cost of living in many parts of Australia is rising faster than in other parts of the world. So, it is expected that people will have less expendable income to donate to causes they truly believe in.

And while the number of Australians donating to charities and non-profits is impressive, the share of the income they donate has decreased over the years.

To counter this trend and ensure that you are still able to live a comfortable life in times of inflation or stagnant pay wages while devoting some money to charity, delaying large giving through a life insurance pay-out could be a good option.

Life insurance as a means of charitable donation can be a good option because it allows a donor to make small contributions through premiums in order to donate a larger sum after death.

How?

Many life insurance policies are designed with flexibility to accommodate people of varying life circumstances. This flexibility also includes several ways to use life insurance as a means of donating to charity.

Generally, donors have the option to amend their existing insurance policy to include a charity or take out new and separate policies with a charity in mind.

The main ways that an individual can make charitable donations through his or her life insurance policy are as follows:

Charitable giving riders

Charitable Giving Riders generally apply to policies that are over $1 million. With these large policies, policy owners can designate a percentage or two of the policy to be paid out to a qualified charity.

Variations in using and applying Charitable Giving Riders exists throughout life insurance companies, but generally, there is no additional cost to enact the rider. Furthermore, often, the Charitable Giving Rider payout will not affect the overall cash value of the policy.

Policy donations

Those who use the Policy Donations options intend for their entire policy to go to a charity. It does not allow the policy owner to split the policy payout between a charity and other individuals or organisations.

Naming a charity as a beneficiary

A policy owner can also simply name his or her charity of choice as a beneficiary on the life insurance policy. While this option is likely the easiest to execute, it will also decrease the donor's estate by the amount of the death benefit.

However, policy owners will often have the option to name a charity as a revocable beneficiary. This method leaves the donor some flexibility for future planning, in case his or her plans or circumstances change.

Gifting policy dividends

This option allows policy owners to gift the dividends from their policies. The owner can then direct the gifts to charities or non-profit organisations of their choice.

While this method is relatively easy to execute, it does lack some other financial advantages that are present with the other options.

Make the charity the policy owner

Often, donors also have the option to make the charity the policy owner -- in effect. In this case, the donor will obtain a policy and bequeath the payout to a charity. The charity will then be responsible for paying the regular premiums and communicating with the insurance company regarding the policy.

Special considerations

Though life insurance policies give policy owners several options in donating all or portions of their payouts to charity, there are some considerations that donors should take into account.

These factors can make the process of donating to charity through life insurance more complicated and include:

• Tax implications

• Donor estate values

• Contested payouts

To ensure that a donor is meeting his or her intent in giving while understanding and accommodating for any potential unintended implications, it is important to talk with an insurance or tax professional when planning charitable donations through a life insurance policy.

Sometimes, it is advisable for an individual to take out more than one life insurance policy. This way, the policy owner can leave a desired sum to charity, while not having to worry about any unintended impacts to other beneficiaries.

Taking out separate policies also gives the donor the option to buy cheaper, low-frills policies for their charities and keep more detailed, comprehensive policies for family members and dependents.

And while life insurance premiums are usually not tax deductible, life insurance payouts are also not taxed. Therefore, a donor does not have to worry about leaving a diminished sum to the charity of his or her choice.

Closing thoughts

Investing in a life insurance policy can be a great way to give to charity after death. There are several options, providing flexibility in setting up and executing life insurance for charitable purposes.

With that, it is important that donor's shop around and speak with a tax and insurance professional to ensure the policy will meet its full intent.

Some policies will even payout to a charity at the time of the initial claim!

While it might be difficult to donate to charity or non-profit organisations now, there is always the option to leave the world a better place through life insurance.

This guide is of an informative nature only and not representative of Compare Club products. It should not be taken as medical or financial advice. Check with a financial professional before making any decisions.

Matthew Lang is the general manager of life insurance at Compare Club. Matthew leads a team of dedicated professionals who are passionate about helping individuals and families make informed decisions about their life insurance needs. Whether it's finding the right coverage for your specific circumstances, comparing policies, or optimizing your existing policy, Matthew and his team are here to provide expert guidance and support.

Meet our life insurance expert, Matthew Lang

Matthew's top life insurance tips

• 1

  Identify what you want out of life insurance before you buy. Knowing the purpose of your life cover will help you choose a policy that meets your needs.

• 2

  It's easy to assume that the sole purpose of life cover is to leave money behind for your family, but there's more to it than that.

• 3

  Life insurers like those on our panel pay an average of 97% of claims in full.

• 4

  There are different types of life insurance, including term life insurance, income protection, trauma cover and total and permanent disability cover.