Of all the progressive things the life industry has done in the past few years to advance underwriting standards and make it easier to do business, one area significantly lagging is charitable life underwriting.

In charitable situations, the maximum amount of coverage available across almost every carrier in the industry is based upon a multiplication factor—typically 10—of one's past annual giving to a charity. So if an applicant on average has given $10,000 annually to a particular charity and desires to leverage this giving by allowing the charity to own life insurance on his life, he would qualify for a maximum $100,000 of death benefit.

Seriously…. $100,000?!?!

This hardly seems worth the time and effort required for you and your client to complete an application and go through the underwriting process.

In fact, I'm not even sure how the 10 times underwriting parameter was developed. When quizzed, carriers are unable to articulate a good response other than to say this is the rule their underwriters have always used.

Bottom line, significant charitable life opportunities exist, but the industry is being held back by an underwriting practice that is old, outdated and needs to be revised.

Let's consider an example of a client age 50 plus who has worked hard during her lifetime to amass a sizeable net worth, but who either doesn't exceed the threshold for federal estate taxation, or who modestly exceeds the threshold but doesn't want to spend the time and money required for estate planning.

The client, however, is charitably inclined and sees value in providing money for causes she believes are worthwhile. She would like to give money on a tax-deductible basis to a qualified charity to purchase life insurance on her life. She may have donated to this charity in the past, and perhaps served in some role for the charitable organization.

So why do we need to stick to an outdated 10 times rule and why can't some portion of an individual's net worth be used to qualify for charitable coverage—such as 50% of net worth? For example, if a person has a net worth of $10 million and has available insurability, why can't he do $5 million of charitably owned coverage?

I asked some carriers about this example and these suggestions.

While a few responses came back as expected to the outdated 10 times rule, there were some progressive carriers willing to take into account a person's net worth and consider a larger amount.

Of course, the devil is always in the details. Though several carriers agreed that there could be more flexibility in charitable underwriting, they didn't want to make a blanket statement concerning such situations. Using a portion of net worth as a guideline would be considered on a case by case basis. All considered 50% of net worth too high, and flexibility would be easier to come by if the person had at least some past charitable involvement or giving. The key point is that they were open to discussing and creating a workable solution for a particular case at hand.

This was inspiring! I realized that it is possible to do something more substantial for charitable giving than was previously the case.

A key step is to discuss and work with carriers on a case by case basis as these situations arise—and well before an application is submitted.

I believe we will develop more favorable charitable underwriting standards as we continue to work with carriers and they become comfortable with newer, more thoughtful and creative charitable underwriting concepts.

It's only a matter of time.

If you have clients who would like to explore the potential for leveraging life insurance in gifts to their favorite charities, give us a call at Windsor. We'll be glad to help!