The Multi-Million Dollar Planned Gift Vehicle You’ve Never Heard Of

Created By: Stephen K. Orr and Lauren Hancock
March 14, 2022

A $500 million campaign goal… A $1 billion campaign goal… A $2 billion campaign goal…

How do organizations achieve these monumental goals? Through Orr Group’s campaign management work, we have found planned giving to be the most impactful way to drive significant progress toward campaign goals. Planned giving has an ROI almost 2x the ROI on major gifts and 3x the ROI of annual giving. When you talk to a donor about planned gifts, you open the conversation to many more ways to give, and often larger gifts. Let’s say, for example, you’re talking to a campaign prospect considering a $1 million pledge over 5 years using cash or securities. What if, through adding a planned gift component, you could show that donor a way to increase their gift from $1 million to $5 million? You can do this, and we’ll show you how.

There are many planned giving techniques to fit the unique circumstances of each donor. In this article, we will focus on one planned gift tool for high-net-worth individuals (HNWI) that is driving multi-million-dollar gifts and helping close successful campaigns.

Financed life insurance is a financially engineered twist on a typical life insurance gift for HNWIs. This tool has been around for decades but has been increasingly used for charitable benefit. According to The Burgess Group, a market leader in financed life insurance transactions, “charitable life insurance transactions are a fast-growing segment of our industry, and we have closed $2 billion dollars in gifts to nonprofits domestically and internationally.” If your organization has high-net-worth donors, you need to know about it.

“Financed life insurance gifts are driving significant long-term value at Niagara University. Through this dynamic gift vehicle, our conversations with donors have reached new levels, enhancing their ability to consider multi-million gifts. These donations will help us achieve our campaign goal and elevate the student experience for years to come.”

-Rev. James J. Maher, C.M., President, Niagara University

WHAT IS FINANCED LIFE INSURANCE?

At a high level, financed life insurance activates a HNWI’s insurability and through collateralized loan and market returns over time, results in a multi-million-dollar donation for a nonprofit. Basically – a financial institution agrees to fund the policy premiums with a loan, the donor buys an insurance policy and posts collateral, the cash in the insurance policy is invested through the insurance provider and the cash value is expected to grow over time, and the nonprofit(s) receive the net balance at the time of the donor’s death.

This appeals to donors because:

• The donor uses their insurability to make this gift possible, and the impact to the donor is a relatively low amount of collateral for a large gift.
• An irrevocable life insurance trust is party to the loan instead of the donor, so the donor’s balance sheet is not impacted by this transaction, and there is no personal guarantee of the loan required by the donor.
• This structure lends itself ideally to a “blended gift” strategy, where the cash requested of a donor is maximized, and the insurance component enables the donor to make a much larger gift.

DONOR CRITERION

A candidate for a financed life insurance gift is:

• Healthy – Donor must be insurable
• Wealthy – A net worth of $10 million or more
• A demonstrated leadership supporter of your organization – Donors typically qualify for a life insurance policy worth 10-15X their lifetime giving history to the organization. A current cash gift or pledge can help get a donor to the level of insurability they would like if they don’t have sufficient lifetime giving.

IS FINANCED LIFE INSURANCE RIGHT FOR YOUR DONORS?

To review, financed life insurance may be a strategy to consider for your organization and donors if you answer yes to the following questions:

• Is your organization in a campaign or seeking to significantly increase fundraising revenue?
• Do you have engaged donors with a net worth of over $10 million who are healthy and insurable?
• Are your high-net-worth donors concerned about minimizing taxes and leaving a legacy?

TALK TO A PLANNED GIVING EXPERT:

This is a high-level overview of financed life insurance and how it facilitates transformational gifts. There are numerous ways to structure these gifts. Having the right strategy in place to identify prospects and engage high-net-worth donors is critical to securing gifts of this level. If you want to understand whether a financed life insurance strategy is right for your organization and your donors, please contact one of our planned giving experts, Steve Orr, Managing Partner, Kelly Dunphy, Managing Director, and Lauren Hancock, Director.

Orr Group does not provide advice on life insurance. We work with partners on implementing these strategies for interested organizations and donors.