Buying Life Insurance for Grandchildren

  • Dec-11-2017
  • Richard Reich
buying life insurance

One of the most rewarding roles in life is that of a grandparent. Often eager in showering their grandchildren with gifts of toys and clothes, grandparents can play an instrumental position in providing the gift of peace of mind and financial benefit throughout their grandchild’s life. Buying life insurance for your grandchildren could end up being one of the most important things that you could do for them.

What is Whole Life Insurance?

Whole life insurance is a form of permanent life insurance that provides lifetime protection.  Coverage continues as long as the premiums are paid.  Even though the coverage amounts and premiums vary depending on the insurer for whole life insurance, all whole life insurance policies provide a savings fund, which accrues over time. This cash value account is a key component for buying life insurance for grandchildren.

The Life Insurance Rules for Grandparents

Grandparents are qualified for buying life insurance for theirrules grandchildren due to the fact that they are considered extended caregivers.  The policy is purchased in the grandchild’s name, and then once adulthood is reached, the grandchild becomes the policy owner.  Eligibility does vary from state to state, but most allow the grandparents to buy life insurance without the parents’ permission.

Peace of Mind Now

Whole life insurance provides a death benefit in the event of the unimaginable.  The death benefit provides coverage for the cost of the funeral, as well as the cost of family counseling, and any uninsured medical bills accumulated on behalf of the child.  This allows the family to grieve without the unnecessary financial stress.  It has been found that 80% of survey participants believed that buying life insurance coverage played a vital role after the suffering of their loss.

Peace of Mind Later

Whole life insurance guarantees that coverage will be available for the child should he or she become disabled or develops a chronic illness later on down the road.  These situations would otherwise possibly be exorbitant in cost or even impossible to secure coverage.  Buying life insurance while the child is still young can ensure lower premiums, which is an asset should the child’s family have any significant medical history.  Upon adulthood, the child may then choose to purchase more coverage without having to provide a medical examination.  The future insurability offered by whole life insurance is the key to providing peace of mind.

Financial Advantages

In comparison to term life insurance, which is purchased for a defined number of years, whole life insurance continues until the premiums are no longer  Accordingly, premiums are lower for a child than an adult.  The low premiums are locked in for life, and as the premiums are paid, the savings accumulate, thereby offering a cash value which is tax-deferred.  Taxes will only be paid when the money is withdrawn (unless the cash value is taken as a loan).  As the savings increases, money can be borrowed from the policy anytime.

Additional popular ways of saving for your grandchildren’s future include certificates of deposit (CDs) or 529 Plan (College savings fund).  However, it is worth focusing on the two distinct ways that buying life insurance is the better option, and that is the rate of return and its flexibility.

A guaranteed rate of return around 4-5% is typical on the cash value of a whole life insurance policy.  This rate of return is substantial when comparing to the return on traditional savings channels, such as high-interest savings accounts and CDs.

Furthermore, life insurance for grandchildren is more flexible than a 529 Plan.  The money may be borrowed against, surrendered in order to pay for schooling or a down payment on a new home, or essentially anything else the policyholder chooses.

Other Considerations

Before going about buying life insurance for your grandchildren, further considerations need to be evaluated.  First, research whether parental consent is required in your state.  Next, you will want to review the premiums very carefully.  Some policies approve of premiums being paid in lump sums or shorter-than-lifetime payments (e.g., 10 or 20 years), while others may require lifetime payments.  Finally, you will also want to carefully review the rates of return, surrender fees, or any other costs associated with the policy.

Final Thoughts

Grandparents offer unconditional love and support that is incomparable.  There is no doubt that this is an incredibly unique and special bond.  It is not surprising that as a grandparent, you would also want to give your grandchild the gift of peace of mind and financial advantage. Buying life insurance for your grandchild will do just that.

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