A planned giving strategy that is starting to get the attention of development officers is the ability to finance large life-insurance policies on their best donors with bank money.
When they finance the premiums of a life-insurance policy, many flexible opportunities present itself perhaps for the first time.
A recent Bank of America study found only 40 percent of the best donors are leaving a gift to charity in their will, perhaps because it would be taking away from the family legacy.
And wealthy donors have said they would give more if “charities would spend more on helping their constituencies than on administrative or fundraising expenses”.
Most charities invite donors to put in place planned gifts that are administratively expensive, do not pay off until the death of the donor and do not guarantee a specified amount.
By financing the premiums for life insurance as an endowment-building tool, the expense for this type of transaction shifts from the donor and the charity and places that responsibility with the bank and into the policy.
The administration of the plan is shifted to the design team. If donors know their future philanthropy and legacy to their family are secured using bank money, the opportunity to discuss current gifting from a donor’s estate while alive becomes conversational and feasible.
All this is possible as long as there is a viable way to pay back the loan and grow the policy using realistic assumptions to illustrate the possibilities for success.
A current gift allows donors to enjoy their goodwill in this lifetime. But a planned gift allows the donor to view a futuristic sense of continuity and perhaps immortality through perpetuity.
Leveraging the planned gift with a donor’s excess insurability and then having the capability to use bank financing to make that transaction happen creates a sense of philanthropic possibilities for a charity’s best donors.
Donors can continue enjoying the impact of their current gifts while knowing they have planned for a future guaranteed endowment.
This is accomplished with the least amount of donor outlay and there is no expense to the charity for administration.
This is an extremely key point in getting donor momentum: The Bank of America survey says high net-worth donors would give more if expenses were curtailed.
This strategy mirrors the business patterns a charity’s best donors employed while running their own businesses and creating their wealth. They are familiar with the risks associated with financing a project.
Mitigating the risk of insuring a donor’s legacy to within a range that is consistent and acceptable to the donor’s existing business patterns creates the logical basis for a leveraged approach to philanthropy and endowment-building.
Financing the premiums for special life-insurance policies that produce guaranteed future endowments is creating a planned-giving paradigm switch.
By allowing their best donors to keep their current gifting patterns in place while using their excess insurance capacity to guarantee an endowment, nonprofits can leverage a single donation into a more dynamic result.
Barry Goldwater is Principal of the Financial Resource Group, an insurance sales, marketing and design firm in Newton, Mass.