On the Record: Taking Out Life Insurance on Your Donors: A Gamble?

Insurability is key
State law requires that the purchaser of life insurance have an “insurable interest” in the participating party. This requirement is reflective of a public policy that prohibits betting on when someone will die. An insurable interest arises out of a relationship between the purchaser of the life insurance and the individual that can be personal, such as husband-wife or parent-child, or business in nature such as a partnership. A common exception to this rule: A charity can purchase and own such insurance if it is designated as the beneficiary of the proceeds.