Yes, you can gift a life insurance policy by transferring ownership to another person, a trust, or a charity. Gifting a policy is a common estate planning strategy used to remove the death benefit from the taxable estate, provide for a family member, or support a charitable cause. However, there are important tax and legal implications to understand.
When you gift a life insurance policy, the current cash value (if any) is considered a gift for federal gift tax purposes. If the cash value exceeds the annual gift tax exclusion (,000 per recipient in 2024), the excess applies against your lifetime gift/estate tax exemption. Ongoing premium payments made by the original owner on behalf of the new owner are also considered gifts.
Gifting to an ILIT (Irrevocable Life Insurance Trust) is a common strategy for estate planning. The trust becomes the owner and beneficiary, keeping the death benefit out of the taxable estate. However, the three-year lookback rule applies — if the original owner dies within three years of the transfer, the death benefit is included in the estate for estate tax purposes.
Gifting to a charity allows the donor to receive a charitable deduction for the policy's fair market value (generally the interpolated terminal reserve value, which is close to but may differ from the cash surrender value). Subsequent premium payments made to the charity for the policy are also deductible as charitable contributions.
A licensed agent in our network can facilitate the ownership transfer, while a tax professional and estate planning attorney can advise on the tax implications. Guarantees are backed by the financial strength and claims-paying ability of the issuing carrier.