D.5. Life Insurance 
     Spring 1992

Development Policy and Administration Manual 
Chapter IV. Gift Administration Procedures 
Section D. Special Procedures for Various Types of 
           Noncash Gifts 
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                              LIFE INSURANCE


In order that an insurance policy may be reported as a gift, the
University must be named both irrevocable owner and beneficiary. 
For reporting purposes, the value of the policy is its cash
surrender value at the time of the gift, not its face value. 
Insurance policies are to be treated as securities for reporting
purposes.

When a life insurance policy is given, it may be surrendered
immediately for its cash value, or it may be maintained, in which
case it is considered a deferred gift.  

If the policy is maintained, the difference between the policy's
cash surrender value and its settlement value on the donor's
death is not reported as a gift, but as gain on the disposition
of assets.  If, after giving the policy, the donor continues to
make periodic gifts to enable the University to pay the premiums,
these are to be reported as separate cash gifts to the Univer-
sity.  A campus that intends to maintain the policy must identify
a fund source for the premium payments; the resulting increases
in the cash surrender value of the policy should not be reported
as gifts.  

When the University receives the proceeds of a policy in which it
was named beneficiary but not owner, the full amount received is
reported as an outright gift of cash as of the date of receipt.

Life insurance policies are subject to the same Internal Revenue
Service (IRS) requirements as other noncash gifts, including the
requirement that the donor file Form 8283 (see Section IV: C.2)
and that the donee file Form 8282 if it disposes of the policy
within two years of the date of contribution (see Section IV: 
C.4).  


Tax Deduction for Gifts of Life Insurance

Amount of deduction for a gift of a policy.  The value of a
policy that is fully paid is equal to the policy's replacement
cost, or what it would cost to purchase the same policy at the
date of gift.  The value of the gift for tax deduction purposes
is limited to the donor's cost basis in the policy.

Policies may be contributed before being fully paid.  The value
of a policy on which premium payments remain to be paid is its 
Interpolated Terminal Reserve Value (ITRV) at the date of gift,
plus the part of the last premium payment that covers the period
extending beyond the date of the gift.  For example, if a policy
is contributed four months after the last annual premium was
paid, the value of the policy is the ITRV at the date of gift
plus two-thirds of the last premium payment.  As is also true for
gifts of fully paid policies, a donor's charitable deduction is
limited to his or her cost basis in the policy.     

Under certain limited circumstances, the amount of a charitable
deduction may be limited to the policy's surrender value, which
is usually less than the replacement cost.  This result may occur
when a charity receives a gift of a policy on which there exist
large loans, and the charity promptly surrenders the policy to
the insurance company for the policy's cash surrender value.


Deduction for premium payments.  Premiums paid by a donor on an
insurance policy that has been given to the University are deduc-
tible, whether the donor pays the premiums directly or contri-
butes the premium amount to the University.  However, premiums
paid directly to the insurance company are likely to be treated
as a gift "for the use of" the University rather than "to" the
University and will thus be limited to 30%, rather than 50%, of
the donor's contribution base.  This is a problem only if the
donor's income is not great in proportion to the size of the
premium or the donor makes other substantial gifts limited to 30%
in the same year.  The problem is avoided if the donor contri-
butes the premium amount to the University and the University
pays the premium.