Saturday, November 10, 2007

Felony or Fundraising?

Seems the Florida Atlantic University (FAU) has a problem: not enough money.
Now, granted, that's not a situation unique to FAU, but they've proposed a somewhat unusual (but not unheard of) fundraising scheme:
I recall some years ago a similar program at one of our state universities: in exchange for lifetime 50-yard line tickets, alumni bought life insurance policies naming the school as the beneficiary.
And churches (and, of course, synagogues) do this all the time. It's an inexpensive, guaranteed way to build a nice endowment. Using life insurance for charitable purposes goes back a long way, and is perfectly legit.
In fact, I also mind a time where I proposed a slightly more grandiose scheme: buying group term life policies on the entire membership, and including the premiums in the annual statements. Alas, I got no interest from any of the carriers I approached (which was probably just as well; there are a number of ancillary issues that accrue to this idea).
But this is different. It seems to me that it's much more analogous to Stranger Owned Life Insurance (aka "Dead Peasant Insurance"), which I had thought had already met its own demise. In the typical case, one applies for a life insurance policy, naming the charity as the owner, premium payor and beneficiary. This is important, because one wants to avoid any "incidents of ownership," which would negate the tax benefits of the arrangement. Each year, one donates to the charity an amount equal to the premium; the charity then cuts a check to the insurer. At one's demise, the proceeds go directly to the charity.
Win, win, win.
But it looks like the FAU model (which, in turn, is based on one "pioneered by Oklahoma State University") has the university simply paying the premiums without any such donation to cover the cost. In a way, it's a good deal: the premiums should amount to a fraction of the death benefit. One supposes that there is some kind of quid-pro-quo tax break for the insured, but that's beyond my purview.
Jac Wilder VerSteeg, deputy editor of the Palm Beach Post, has another concern:
"But hold up. There is a real risk that the designated donors would be inconsiderate enough to live so long that the university would pay more in premiums than it would recover upon the donor's death. Before undertaking the life insurance scheme, FAU officials want to satisfy themselves that the risk of losing money is minimal."
It is minimal; in fact, it is non-existent: properly structured, the sum of the premiums paid can never equal (let alone exceed) the face amount of the policy. All the university needs to do is to make sure that the folks designing the plans know what they're doing.
I wonder if Bob or Bill are Florida licensed.
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