Life · Chapter 10 · Personal Uses
Charitable Uses of Life Insurance
Definition
Transferring an existing policy to a qualified charity → an income tax deduction generally equal to the lesser of the donor's cost basis or the policy's fair market value (roughly its cash value), because a policy with gain is ordinary income property under IRC §170(e)(1)(A). Buying a new policy with the charity as both owner and beneficiary → the donor's future premium payments are deductible charitable gifts.
Exam tip
Exam shorthand is "deduct the cash value" — the real cap is the lesser of basis or FMV. Either way the answer is never the face amount and never zero.
Related terms