Life insurance gets respect

By Todd Cohen

Recognizing that 1,800 of its 15,000 agents and employees in the United States had earned professional designations from The American College in Bryn Mawr, Pa., New York Life two years ago decided to make a gift to the school.

The company asked its American College grads if it could buy life insurance policies for them and name the school as beneficiary. Based on their response, the company paid $1.7 million for policies with a combined face amount of $4 million for 1,382 agents and employees. “We were able to generate a philanthropic gift for the college with something we specialize in,” says Donna Matzko, corporate vice president, agency, for New York Life.

Long available as a charitable tool, insurance “hasn’t had the exposure it should have,” says Stephen D. Tarr, vice president for development at The American College. “Many people don’t understand how it can really help build long-term endowment for the college or charity.”

The American College, which trains financial-services professionals, is the owner or beneficiary of life insurance policies that will be worth $25 million on the death of the donors the policies insure. That includes $13.6 million in life policies donated as part of the school’s recently completed $25 million endowment campaign. “We encourage our constituency to consider all types of deferred gifts but life insurance is an important element of that,” says Tarr.

Founded 75 years ago by Solomon Huebner, an economics professor at the University of Pennsylvania, The American College initially trained life insurance agents and in the past 20 years expanded its focus to include other financial-services professionals. The school now is launching a new Chartered Advisor in Philanthropy certificate to train those professionals, as well as trust officers, accountants and nonprofit professionals, about charitable-giving tools and techniques, including insurance.

Insurance as a philanthropic tool can take many forms ranging from making a charity the beneficiary of a life policy to buying insurance to help replace an asset donated to charity, says Tarr, who joined the college 14 years ago after serving as director of sales for Farm Family Insurance in Albany, N.Y.

A donor, for example, could:

* Buy a new life insurance policy, making a charity the policy’s owner and beneficiary, and take a tax deduction on the annual premium payment, which is paid to the charity.

* Name a charity as owner and beneficiary of an existing policy with an accumulated cash value, and take a tax deduction roughly equal to that cash value.

* Name a charity as beneficiary of the taxable portion of a group life policy, and thus avoid the tax.

* Change the beneficiary on a paid-up group life policy to a charity, leaving as a legacy a policy the donor might not need.

* Donate a life policy with accumulated cash value to a charity, which in turn can pay a gift annuity to the donor, who gets an income stream for life and a tax deduction.

* After donating an asset to a charitable remainder trust that produces income for the donor and benefits a charity on the donor’s death, use part of the income to buy life insurance to  help “replace” the donated asset, benefiting the donor’s children.

Phil Cubeta, chief of staff for the Nautilus Group, a Dallas-based division of New York Life that helps the insurer’s 200 top agents work with high-net-worth clients and their advisers on estate and business-succession strategies, says insurance is a relatively clear-cut philanthropic tool. “It’s not one of these tax-dazzling strategies that requires a lot of fancy footwork,” he says. “Life insurance is a good way to turn small givers into big givers. The donor can give an affordable premium and leave a much larger legacy.”

Cubeta says charities should encourage donors to give insurance in addition to annual gifts. “A charity can work through the issue of ‘now’ money versus ‘future’ money,” he said. “If you really want money today, don’t sell them insurance. But if the charity has long-term needs and can induce the donor to make an additional gift, that’s a good thing.”

He says charities should encourage donors to limit to no more than five the number of annual premiums they have to pay and, if possible, buy a single-premium policy. “To encourage people to complete their pledge of premiums,” he says, “you really want to point them toward a date when they’re going to be honored or recognized, and five years seems like a reasonable period.”

Bill Sturtevant, vice president of planned giving for the $1 billion-asset University of Illinois Foundation in Urbana, Ill., says life insurance can be a “first step in a longer-term major and deferred-gift relationship.” Some charities solicit gifts of insurance from older donors whose life policies have high cash values but who no longer may need the coverage because their children are older, Sturtevant says. But an even bigger group of prospects consists of younger donors who may want to make a big long-term commitment for a minimal after-tax investment, he says. “A broad market are those who are younger and use insurance as a first step in a longer-term deferred-gifts program,” he says. “It’s very affordable and you can deduct premium payments.”

The University of Illinois Foundation owns and is the beneficiary of insurance policies with a combined face value of more than $25 million, he says. “We use it very extensively,” he says. “Most mature organizations, in a fundraising sense, actively encourage and receive insurance gifts.”

The new Chartered Advisor in Philanthropy certificate program at The American College is being funded with part of the income from a charitable remainder trust created by Sallie and Bill Wallace of Potomac, Md. Naming the college as beneficiary, the couple donated their beach house in Bethany Beach, Del., to the trust, which sold it, netted $2.3 million and is paying them an annual income equal to 7 percent of its assets.

While the school will get the assets when the Wallaces die, they have agreed to give it $75,000 a year from their trust income to get the philanthropy certificate program started. Many donors “have been talked into making large commitments to worthwhile charities by people who did not know how to advise on the best techniques in how to make a gift,” says Wallace, retired vice-chairman and chief operating officer of Phoenix Home Life Mutual Insurance Co. in Hartford, Conn., now The Phoenix Companies Inc.

A former American College board chairman who has purchased life policies with a combined face value of $500,000 to benefit the college and five other charities, Wallace 20 years ago spearheaded the school’s effort to launch an endowment by encouraging donors to make gifts using life insurance. His idea was both to benefit the school, and to demonstrate for the insurance industry a philanthropic use for its products. “If you really want to make a major gift,” he says, “this is a painless way to do it.”

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