Millions of Americans make donations of cash and property to the charities of their choice each year. However, while these donations can provide valuable tax deductions, many donors are left wishing that they could do more for the charities that they love and support. Some donors would therefore be wise to consider using their life insurance policies as a more effective means of leveraging the support they provide. In many cases, this can be the most effective and convenient asset that they can give. However, there are a few different ways that this can be done. This article examines the various methods of life insurance donations and their advantages.

Charitable Giving Riders
Charitable giving riders are a relatively new addition to the family of riders available in modern life insurance policies. For example, these riders can be attached to policies with face values of over $1 million and then pay an additional 1-2% of the policy's face value to a qualified charity of the policyholder's choice, although sometimes there are limitations placed on the maximum allowable gift amount. Furthermore, these riders usually come at no additional cost and often do not increase the premium or reduce the cash value or the death benefit of the policy. These riders effectively eliminate the need to

Once the rider has been added, no further action is needed by the policyholder. These riders do have a few limitations; perhaps the largest is the high amount of protection that must be purchased in order to use them. Any charity chosen must also be a qualified 501(c)3 charity that meets the IRS definition of a nonprofit organization. Furthermore, make sure that the charity will actually accept your life insurance policy. Some types of policies, such as term policies, are often shunned by these organizations.

Policy Donations
Although this strategy is a bit more involved than merely purchasing a charitable gift rider, policy donations also provide a much greater benefit to the donor as well as the charity. Gifting a life insurance policy can greatly reduce the donor's taxable estate, which can save thousands of dollars in estate taxes for upper-income taxpayers. Gifting a policy can also yield a current income tax deduction of the policy's fair market value. Of course, this deduction can be quite significant in some cases.

Perhaps most importantly, the charity will receive the entire face amount of the policy upon the death of the insured. This is usually going to be many times the amount that they would receive from any rider, and can represent a substantial windfall. However, the cost to the donor will only be a small fraction of that amount each year, and any premiums paid after the date of the gift will be deductible as well.

There is also no limit on the size of the policy that may be donated, since charitable donations have no ceiling for estate tax purposes. This strategy also does not impede the donor's current investment strategy, and can also provide a useful way to dispose of an unwanted policy that was originally purchase to cover a need that no longer exists.