What is a Charitable Giving Rider?
A charitable giving rider is a feature policy owners can add to specific life insurance policies. This rider pays out a percentage of the policy’s face value to the qualified charity of the policy owner’s choosing when they pass away.
The way these riders work
These riders, like any other rider, are add-ons you choose to attach to your life insurance policy. In these cases, the riders stipulate that the life insurer will pay a specified sum of money to a qualified charity that you name.
Notice that we say qualified charity. Generally, in order to put these riders in place, you need to pick a nonprofit organization that’s a 501(c)(3). In other words, you can’t use this rider to give money to just any company. They need to be a nonprofit as recognized by the IRS.
Once you’ve picked a qualified charity and put the rider in place, your insurance provider will pay a portion of money to that charity when you die. This money doesn’t get subtracted from the death benefit you leave to your beneficiaries. It’s an amount beyond your policy’s face value that the insurer distributes to the charity.
Adding a charitable giving rider to your life insurance policy usually doesn’t increase your premiums.
The fine print with charitable giving riders
Generally, these riders come with some very specific parameters, including the following features:
The percentage of death benefit distributed. Most charitable giving riders express the amount that will be paid to the charity as a percentage of your policy’s death benefit (e.g., 1% or 2%).
The maximum amount distributed. That said, some insurers cap the payout beyond the percentage. They may say that the rider will pay out 1% of your death benefit or $10,000, whichever is less, for example.
Only available with bigger policies. You might be wondering how these riders get funded since they don’t increase your premiums.
They’re available because they’re an added incentive to purchase a larger policy. Most life insurance providers won’t offer these riders on policies with a death benefit smaller than $1 million.
Finding charitable giving riders
Assuming you’re purchasing a policy large enough to qualify you for a charitable giving rider, you still might need to do some legwork to find an insurer that will offer you this added feature.
These types of riders are fairly new to the insurance industry. As a result, you might need to check with multiple insurance providers to find a company that will offer you this policy add-on.