Young girl surprsies dad with gift

Give a gift that lasts a lifetime

If you have grandchildren, you know finding the perfect gift can be a challenge. You want something that’s meaningful. Instead of buying your grandchild another toy, you want to find something special and memorable. Here’s an idea you may not have thought about: life insurance.

While it’s not a typical gift, a permanent life insurance policy on the life of a young person can help establish a foundation for a lifetime of financial security by providing many important benefits.

Benefits

Protection. The policy you give as a gift for your grandchild today can be there years from now, providing death benefit protection for the child’s future spouse or children.

Accumulation potential. The cash value in a whole life insurance policy is guaranteed to grow over time. Throughout the life of the policy, it may be accessed through policy loans and partial withdrawals1 and used for any number of purposes, such as:

  • Funds to help with college expenses.
  • A down payment on a new home.
  • Money to start a new business venture.
  • Income for the child’s own retirement to use decades from now.

Tax advantages. When accessed through policy loans and partial withdrawals, the life insurance policy’s cash value can be used with potentially no tax consequences.1 The policy death benefit is paid tax-free to beneficiaries upon the death of the insured.

Lowest premiums. Premiums generally increase with age, but with permanent life insurance, it’s possible to lock in the premium at the insured person’s current age — for life.

Future insurability. Once the life insurance policy has been issued, coverage cannot be canceled as long as required premiums are paid.

Purchasing details

Ownership. When a child is the insured person, the life insurance policy is generally owned by the purchasing adult. When the insured becomes a legal adult, ownership can be transferred to the insured.

Beneficiary. Generally, the beneficiary of the policy is the insured’s parent or guardian. When the insured becomes the owner of the policy, he or she can name the beneficiary.

Underwriting. Medical and financial guidelines are a little different when a child is the insured. Generally, there are fewer medical requirements, a parent signature is required and the size of the policy is limited by the parent’s coverage amount.

Premiums. There are several options to pay for the life insurance gift and each has potential tax consequences, which your tax advisor can advise you on.

  • Lump sum: Instead of giving a child a cash gift, you could use that sum, perhaps $10,000 and purchase a life insurance policy for whatever face amount (death benefit) that sum would buy.
  • 10-Pay: You can decide the premium you’re willing to pay or the face amount, and pay for a whole life insurance policy over 10 years.
  • Ongoing premiums: You can also select the premium or death benefit desired, and make the scheduled premium payments.

If you’re still searching for the perfect gift for your grandchildren, consider how much a life insurance policy could protect and shape their future. Talk with a financial professional for more information.

1Tax law permits a policy owner to withdraw life insurance policy cash values up to the policy owner’s basis or investment in the contract without income tax consequences. Loans and withdrawals will reduce the policy’s death benefit and cash value and may cause the policy to lapse. Withdrawals beyond basis may be taxable income. Excess and unpaid loans will reduce policy value and may cause the policy to lapse. If a policy lapses, unpaid loans are treated as distributions for tax purposes. For more information about the tax results of life insurance, consult your attorney or tax advisor.