The birth of a grandchild is one of the most exciting experiences in one’s life. Often times we are contacted by grandparents who are contemplating the purchase of life insurance for grandchildren as a gift. I can guarantee these grandparents are not considering life insurance for the grandchild because they think they may pass away prematurely, so why would they consider life insurance?
Most of these grandparents understand life insurance is not just purchased for death benefit protection if a tragedy were to occur, but it can have many other uses throughout the life of the child. Some of these factors include protecting the child’s future insurability, access to cash value, and tax advantaged savings planning. These are just some of features which grandparents look for when considering gifting a whole life insurance policy to a grandchild.
For anyone to purchase life insurance on someone else, insurable interest must first be established. In most cases, grandparents can be considered caretakers for grandchildren, which established insurable interest. Many companies also require the parent and grandparent already have life insurance in place which is equal to, or exceeds, the amount of coverage which is being purchased on the child. In most states, the parent or guardian must sign the application to acknowledge life insurance is being placed on their child by the grandparent.
In order to apply for life insurance on grandchildren, the grandparents would just need to obtaining basic information on the grandchild, and the child’s social security number. Companies generally do not require the child to undergo a phsyical exam if the child had a healthy birth, and has remained healthy.
A major reason for people purchasing life insurance on children is to ensure they will have life insurance as an adult, when they typically would need the protection. Because life insurance on children is significantly less expensive than adults, it could make sense to lock in the premium while you are young. If your family has a history of certain conditions or diseases which would cause someone to be uninsurable later in life it makes sense to purchase a policy when the child is younger and healthy.
Some life insurance policies for grandchildren will increase at a certain age, without a premium increase. Other policies will give special options throughout the life of the insured where coverage can be increased without proof of insurability so the policy can grow throughout life. Their are even some life insurance policies where you can dictate the number of years you want to pay premiums into the policy, which can be designed so the life insurance policy is “paid up” when the child hits a certain age.
When considering purchasing life insurance on grandchildren many options exist, from a multitude of different companies. Since this is a policy which should be kept in force for such a long time, it is important to choose a highly rated life insurance company.
The better designed life insurance plans for grandchildren will have the ability to accumulate cash value. When designed properly they will not only provide a life insurance death benefit, but will also have a pool of cash which can be borrowed against throughout the life of the individual.
This could be a viable option if you are looking to save money over an extended period of time in a safe, tax advantaged manner.This money can be used for life events such as college, down payment on a home, or future retirement needs.
Purchasing life insurance on children is often a much debated topic among financial professionals and in the financial media. Everyone has a different family situation so just like any financial decision it depends on the individual whether life insurance on grandchildren is something to consider. Many financial decisions which some deem unnecessary, end up for others being the most important decision they make. If you feel more security having life insurance on your children and grandchildren, then the few dollars a month is totally worth it.