Becoming a grandparent is an experience like no other. Grandparents are often eager to shower the newest apple of their eye with gifts. More than toys and clothes, grandparents can choose to gift whole life insurance to their grandchildren. It is the gift offering peace of mind and financial benefits throughout the childs life.
What Is Whole Life Insurance?
Whole life insurance is a type of permanent life insurance that protects the individual for his or her entire life. As long as the premiums are paid, coverage continues. While the coverage amounts and premiums for whole life insurance can vary based on the insurer, all whole life insurance policies allow a savings amount to accumulate over time.
The Rules for Grandparents
As extended caregivers, grandparents are eligible to purchase whole life insurance for their grandchildren. The insurance can be purchased in the childs name, which means when the child reaches adulthood, the child becomes the policy owner. Though rules can vary, some states even allow grandparents to purchase the life insurance policy without the parents permission.
Peace of Mind Now
In the event of the unthinkable, whole life insurance provides a death benefit. This benefit could then be used to cover the cost of the funeral. Additionally, the benefit may also cover the cost of family counseling or even any uninsured medical bills that were accrued for the treatment of that child. This allows families to focus on remembering their child and grieving their loss without added financial stress. In fact, 80% of people surveyed believe life insurance played a critical role in suffering a loss.
Peace of Mind Later
Whole life insurance also guarantees the coverage will be available to the child, even if he or she becomes disabled or develops a chronic illness later in life that might otherwise make obtaining life insurance cost-prohibitive or even impossible. Should a family have a history of medical illness, obtaining insurance when the child is young could also ensure lower premiums. Once the child becomes an adult, he or she may elect to buy more coverage without having to undergo a medical exam. This future insurability is one of the key ways in which whole life insurance provides a lifetime of peace of mind.
Unlike term life insurance which is bought for a finite number of years, whole life insurance continues indefinitely as long as premiums are paid. As such, premiums can be much lower when purchased for a child than an adult. These low premiums can be locked in for life.
As premiums are paid, the savings accumulate for cash value. This cash value will grow tax-deferred, which means taxes will only need to be paid once the money is taken out. As the savings grows, money can then be borrowed against the policy at any time. The policy can also be cashed out or surrendered.
While some people advocate using other savings vehicles, such as certificates of deposit or 529 plans to give grandchildren money, it is worth noting the cash value of whole life insurance is distinctive in two ways: a rate of return and flexibility. Life insurance policies come with a guaranteed rate of return on the cash value that is generally around the 4 to 5 percent mark. This return is significant when compared to traditional savings vehicles like high-interest savings accounts and certificates of deposit. In addition to this rate of return, the money may be borrowed against or the policy surrendered to pay for schooling, a down payment on a home, or anything else the individual chooses. It is much more flexible than a 529 plan.
In addition to reviewing options to see if parental consent is needed to purchase the policy, there are a few additional considerations grandparents should think about before buying life insurance for their grandchildren. Grandparents will want to review the premiums carefully. Some plans allow premiums to be paid in lump sums, whereas others require ongoing payments. Finally, grandparents will also want to carefully review the rates of return, surrender fees, and any other costs associated with the plan.
When a baby is born, so is a grandparent. There is no doubt that the relationship is incredibly special. Grandparents offer unparalleled love and support to their grandchildren in so many ways. Should a grandparent wish to give the gift of peace of mind and financial advantage, buying whole life insurance for grandchildren can do just that.
Our team is here to help you determine what policy works best for your family. Visit selectquote.com or call 1-800-279-6192 for your free personalized consultation.