There are opinions on both sides as to whether buying life insurance for children or grandchildren is a good idea or an appropriate financial investment.
Here are four reasons to consider in making your decision.
1. Building cash value. By purchasing a whole life insurance policy, the policy accumulates cash value over time. The cash value can be used for college tuition, a down payment on a car or house or used in an emergency. Yes, you receive the same result if you open an investment account but there is something about building cash value inside a life insurance policy that is different. First of all, the cash value is exempt from creditors which a bank account is not. Second, you are required to pay for the policy each year when the premium notice arrives. There is a psychological difference in being required to write a check for a life insurance premium that is not the same as making a voluntary deposit into a bank account.
- Cost. The premium on a children’s life insurance policy is based on the child’s age. The premium will not increase unless you want to buy more insurance.
- Guaranteed insurability.
Most of our clients don’t want to think of using the life insurance policy for a death benefit. Instead, we suggest focusing on insurability.
Purchasing a “kiddie insurance policy” from certain companies provides an added benefit of an option to purchase additional insurance at a much later date.
By purchasing a children’s life insurance policy, you can protect the child’s ability to buy more life insurance in the future should something happen that would cause a policy to be unaffordable or even unavailable due to illness or disease. Even though age is a factor in the cost of future insurance, health changes won’t interfere in obtaining additional insurance where none would be otherwise obtainable or not obtainable at all.
- Generational Wealth Transfer.
Grandparents certainly love their grandchildren. Purchasing a life insurance policy for a grandchild can provide a significant benefit many years into the future. While a grandparent may not be around to see the benefit, the time-value of money will provide a significant compounded gift to a beloved grandchild.
If you are a parent or grandparent and are thinking about alternative ways to save money for your children or grandchildren, we suggest that you consider purchasing a whole life policy on the lives of your child or grandchild. Please call us at 214.727.6000 to set up a time to discuss this important opportunity
