How to Value a Life Insurance Policy for Charitable Giving Purposes

The amount of the deduction for a charitable gift of a life insurance policy is generally the lower of: (a) the Fair Market Value (FMV) of the policy; or (b) the donor’s cost basis. Therefore, where the FMV at the date of the gift is greater than the net premiums the client has paid, the deduction will be limited to the client’s net premiums.

FMV is generally determined the same as for gifts of life insurance in general. However, if the FMV of the policy is greater than $5000, then a qualified appraisal must be obtained pursuant to Code section 170(f)(11)(E). Neither the donor, the insurance agent, nor the insurer who issued the policy can perform this appraisal.

Reproduced with permission.  Copyright The National Underwriter Co. Division of ALM

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