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GIFTS OF AND USING LIFE INSURANCECharitable giving and life insurance programs often have a tenuous existence.A recent manifestation of that fact is discussed below. 3§ 17.2 LIFE INSURANCE CONCEPTSPrior to examining the uses of life insurance in the charitable giving context, it isappropriate to briefly summarize the basics of life insurance.(a) BasicsLife insurance is represented by a contract—known as an insurance policy—thatinvolves at least three parties:• An insured person• The owner of the insurance policy (usually the purchaser of the policy)• The insurer (the insurance company that provides the policy)Another party to this arrangement is the beneficiary of the insurance proceeds.The owner of the insurance policy may be the beneficiary, or the beneficiarymay be another person. Also, two or more persons may be the beneficiaryof an insurance policy.If the insured qualifies, and if the requisite consideration for the insurancecontract—the premium—is paid by the policy owner, the insurance companypromises to pay a cash benefit (death benefit) if the insured dies while the policyis in force. Depending on the type of life insurance, a portion of the premiummay go into a cash account (and accumulate as cash value). The cash value isavailable to the policy owner at any time during the insured’s lifetime, by canceling(cashing in) the insurance policy.The insured and the owner of the policy may be the same person, or theymay be different persons. For example, one may purchase a policy on his or herown life. Alternatively, a spouse may purchase an insurance policy on the otherspouse’s life. When one spouse purchases a policy on the other spouse’s life, thepurchasing spouse is the policy owner and the other spouse is the insured.The distinction between the insured and the policy owner is also importantfor tax reasons. At one’s death, all of one’s property is tabulated for the purposeof determining if one’s estate must pay estate taxes. Property includes the deathbenefits from life insurance unless the decedent was merely the insured but notthe policy owner. If the decedent was not the policy owner, and if he or she hadno rights (for example, to use the cash value or to name the beneficiary), the deathbenefit paid at death will not be included in the estate for estate tax purposes.(b) Types of Life InsuranceBroadly speaking, there are two categories of life insurance: term insuranceand permanent insurance. Each has many different types. For example, terminsurance can be classified as level term, decreasing term, and increasing term.3 See § 17.6. 528