Life Insurance: What’s It Worth? (And Who Says?)

Unneeded policies can be a source of wealth for not-for-profit organizations and a source of tax deductions for donors. Here’s how.

January 2008
by Alan Breus/Journal of Accountancy

Not everyone can make a multimillion-dollar bequest to their alma maters, but many alumni have insurance policies for which they might easily be persuaded to grant to their school or another deserving NFP.

University development offices and other prospective NFP beneficiaries are well aware of this, and many encourage gifts of policies. What they and prospective donors might be less sure of — and consequently need your help in deciding — is how to properly value donated life insurance interests for tax purposes. And you may need to brush up on the new provisions for qualified appraisals under the Pension Protection Act of 2006 (PPA).

Qualified appraisals are a concern for taxpayers donating non-cash charitable gifts of all kinds. The questions of appraiser qualification and responsibility remain an area of concern for the IRS due to a long history of valuation problems dealing with gifted life insurance. Life insurance can be prone to incorrect valuation because of the plethora of types of policies available, ownership and beneficiary issues and misunderstanding of valuation methods of how to apply fair market valuation principles.

Read the full article here.