We buy our kids toys and clothes, and they use them up and wear them out. But, my Dad bought something for me that I did not appreciate until I was married with a family. It turns out that gift has more meaning to me than all the toys and clothes my parents ever bought me. When I was 20, he bought me a permanent Life Insurance policy!
Having it paid up relieves me of the burden many adults face when they realize that they want to have this protection but it’s an expense that must compete with everyday expenses for your financial resources. I now only have to consider the less expensive Term coverage when looking at the amount needed to adequately protect my family should something happen to me. One of my favorite phrases is “We don’t plan to fail, we fail to plan…” and this is a great step to make sure your child/grandchild is not living that reality.
Please consider the gift of Life Insurance for your children, or grandchildren, and how it can benefit them throughout their lifetimes. Especially when they start their own families and are working hard to make ends meet.
The following is from a Farmers Friendly Voice, June 2015, Publication
Juvenile life insurance is permanent, affordable insurance that can provide your children or grandchildren with their own life insurance policy as well as benefits above and beyond what your own life insurance policy may offer them.
Why do people insure their children and grandchildren?
There are many reasons:
- A medical exam is typically not required and coverage is guaranteed for life1, regardless of the future health of the child.
- The cost of insurance for a child is typically less than similar coverage for an adult. Most policies offer an option to purchase additional insurance in the future, regardless of insurability.
- Over time, the policy may accumulate cash value. This cash value can be used to pay future premiums.
- You may withdraw or borrow funds from the policy generally income tax free.2
- Unlike funds in 529 college savings plans, a juvenile life insurance policy’s cash value doesn’t have to be used specifically for education. It can be used by a grown child for other purposes such as wedding expenses or a down payment on a home, for example.
- Juvenile life insurance may also helpful for estate planning by providing for the tax-efficient transfer of wealth.
How is it different than college savings plans?
Let’s say you want to accumulate funds for your child or grandchild’s future college tuition. You may consider a 529 savings plan. There may be up-front tax savings which might be attractive, but if your child or grandchild’s college plans change, withdrawal restrictions will generally apply. With limited exceptions, you can only withdraw money that you invest in a 529 plan for eligible higher education expenses without incurring taxes and penalties. In contrast, a permanent life insurance policy’s cash value can be withdrawn or borrowed tax-free by the policy owner for any purpose. It can be used to help the child purchase a car, a home, or even to start a business.
If the child goes to college as planned, under current rules, the cash value that has accumulated in a permanent life policy won’t have to be declared and counted against them when it’s time to qualify for financial aid. Although each educational institution may treat assets held in a 529 plan differently, investing in a 529 plan will generally reduce a student’s eligibility to participate in need-based financial aid.3
Consider a non-traditional and versatile gift for your child or grandchild. Let’s talk about how the cash value in a permanent juvenile life insurance policy can potentially provide your children or grandchildren with a lifetime of financial and life insurance options.
1The death benefit[s] is [are] guaranteed according to the terms of the contract and provided that premiums are paid.
2Policy loans and withdrawals will reduce cash surrender value and death benefit. Policy loans are subject to interest charges. If your policy is a modified endowment contract, loans and withdrawals may be subject to taxes and penalties.
For informational purposes only. In general, partial withdrawals from a permanent life insurance policy in excess of the policy’s basis are taxable, and limited circumstances exist where death proceeds will be taxable. Neither Farmers New World Life Insurance Company, its employees nor its Agents provide legal or tax advice. Always consult your own attorney, accountant or tax adviser as to the legal, financial or tax consequences and advice on any particular transaction.
Distributions from a life insurance policy in the character of partial surrenders (withdrawals) up to basis or policy loans will generally be income tax free, provided the policy does not violate Modified Endowment Contract (MEC) guidelines and the policy is not terminated during the lifetime of the insured. MEC guidelines are rules in the Internal Revenue Code which specify maximum premiums that can be paid without triggering adverse tax consequences for withdrawals. A policy termination during the life of the insured can cause the owner a single taxable event for any gains in the policy that were borrowed or withdrawn on or before the termination date.