Third party life insurance

An alumnus of IIT Madras has made a contribution to the institute in a very interesting manner. He has assigned IITM as a beneficiary of his life insurance policy. The amount isn’t large – $100,000, which I would think is lower than the median amount insured in pure life insurance (as opposed to insurance combined with investment) policies in India.

The important thing is if there are any regulatory implications of this. Typically, insurance companies don’t allow you to assign your policies to random third party beneficiaries, since it can result in adverse incentives – the random third party can murder you, for example (it’s common, however, for employers to be beneficiaries of key employees’ life insurance). However, things might be different here since the receiving entity is an institution.

If insurance firms are willing to write such policies, I wonder if this could be a scalable and sustainable method to donate to institutions of one’s choice. Or if it is simply better to will the same amount of your life’s savings to go to the institution after your death.

PS: I found the original article on LinkedIn and found it incredibly difficult to link to the text and picture. Hence just put the picture here. Another reason why LinkedIn sucks.

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