How To Get Life Insurance For Your Grandchildren And Why You Should

 

Life insurance is a contract between you and an insurance company that pays out a lump sum of money to your beneficiaries if you die. It can provide financial security and peace of mind for your loved ones in case of a tragedy. But did you know that you can also buy life insurance for your grandchildren?

Buying life insurance for your grandchildren is a way to show them your love and care, as well as to give them a financial benefit in the future. In this article, we will explain how to get life insurance for your grandchildren, what types of policies are available, why you should consider buying it, and what are some alternatives to life insurance. By the end of this article, you will have a better understanding of how to protect and invest in your grandchildren’s future with life insurance.

Types of Life Insurance for Grandchildren

There are two main types of life insurance for grandchildren: whole life and term life. Let’s take a look at how they differ and what are their pros and cons.

Whole Life Insurance

Whole life insurance is a type of permanent life insurance that lasts as long as you pay the premiums. It has a fixed death benefit and a cash value component that grows over time. The cash value is a savings account that you can access while the policy is in force, either by withdrawing or borrowing money from it. You can use the cash value for any purpose, such as paying for college tuition, buying a house, or starting a business.

Some of the advantages of whole life insurance for grandchildren are:

• It provides lifelong coverage and guarantees their future insurability, regardless of their health condition or lifestyle choices.
• It locks in low premiums at a young age, which will never increase over time.
• It builds cash value that can be used for various goals and opportunities.
• It can be transferred to the grandchildren when they reach adulthood, giving them ownership and control over their policy.

Some of the disadvantages of whole life insurance for grandchildren are:

• It is more expensive than term life insurance, which means you have to pay higher premiums for a lower death benefit.
• It has lower returns than other investment options, such as stocks or mutual funds.
• It can be complicated to transfer ownership or change beneficiaries, especially if there are tax implications or legal issues involved.
• It may not be necessary if your grandchildren have other sources of income or assets that can cover their expenses.

Some examples of companies that offer whole life insurance for grandchildren are:

• Gerber Life: This company specializes in life insurance for children and offers policies with face amounts ranging from $5,000 to $50,000. The premiums are guaranteed to remain the same throughout the policy term, and the cash value grows at a guaranteed rate of 4% per year. The policy can be transferred to the child at age 21 without any additional fees or underwriting.
• Globe Life: This company offers whole life insurance policies with face amounts from $5,000 to $30,000. The premiums are based on the child’s age at the time of application and do not increase as they grow older. The cash value accumulates at a variable interest rate that is declared annually by the company. The policy can be transferred to the child at age 25 without any additional fees or underwriting.
• Mutual of Omaha: This company offers whole life insurance policies with face amounts from $5,000 to $50,000. The premiums are based on the child’s age at the time of application and do not increase as they grow older. The cash value grows at a guaranteed rate of 3% per year. The policy can be transferred to the child at age 18 without any additional fees or underwriting.

Term Life Insurance

Term life insurance is a type of temporary life insurance that lasts for a specific period of time, usually between 10 and 30 years. It has a fixed death benefit and no cash value component. If you die during the term, your beneficiaries will receive the death benefit. If you outlive the term, your coverage will end and you will receive nothing.

Some of the advantages of term life insurance for grandchildren are:

• It is cheaper than whole life insurance, which means you can buy more coverage for a lower premium.
• It is simpler and easier to understand than whole life insurance, which means you have fewer complications and hassles.
• It is more flexible and customizable than whole life insurance, which means you can choose the term length, the coverage amount, and the beneficiaries that suit your needs and preferences.
• It is more suitable if your grandchildren have a temporary need for life insurance, such as paying off a debt, replacing an income, or covering a funeral.

Some of the disadvantages of term life insurance for grandchildren are:

• It does not provide lifelong coverage and does not guarantee their future insurability, which means they may not be able to get a new policy or renew their existing one if their health or lifestyle changes.
• It does not build cash value that can be used for other purposes, which means they will not have any savings or equity from their policy.
• It may not be available as a standalone policy for grandchildren, which means you may have to buy a policy for yourself and add them as riders or beneficiaries.

Some examples of companies that offer term life insurance for grandchildren are:

• AIG: This company offers term life insurance policies with face amounts from $50,000 to $10 million. The premiums are based on the age, gender, health, and lifestyle of the insured person. The term lengths range from 10 to 35 years. The policy can be converted to a permanent policy without any additional underwriting. The policy can include a child rider that covers all eligible children under the age of 25 for an additional fee.
• Banner Life: This company offers term life insurance policies with face amounts from $100,000 to $10 million. The premiums are based on the age, gender, health, and lifestyle of the insured person. The term lengths range from 10 to 40 years. The policy can be converted to a permanent policy without any additional underwriting. The policy can include a child rider that covers all eligible children under the age of 18 for an additional fee.
• Prudential: This company offers term life insurance policies with face amounts from $100,000 to $65 million. The premiums are based on the age, gender, health, and lifestyle of the insured person. The term lengths range from 10 to 30 years. The policy can be converted to a permanent policy without any additional underwriting. The policy can include a child rider that covers all eligible children under the age of 18 for an additional fee.

How to Buy Life Insurance for Grandchildren

Buying life insurance for your grandchildren is not as difficult as it may seem. Here are the steps involved in buying life insurance for your grandchildren:

1. Decide on the type and amount of coverage you want to buy. You should consider your budget, your goals, and your grandchildren’s needs when choosing between whole life and term life insurance and deciding how much coverage to buy. You should also consult with your grandchildren’s parents or guardians to get their permission and input on buying life insurance for their children.
2. Compare quotes from different companies and agents. You should shop around and compare quotes from different companies and agents to find the best deal and service for your situation. You can use online tools or websites to get instant quotes from multiple companies or contact agents directly to get personalized quotes and advice.
3. Fill out an application and answer medical questions. You will need to fill out an application form with basic information about yourself and your grandchildren, such as name, address, date of birth, social security number, etc. You will also need to answer some medical questions about your grandchildren’s health history and current condition. Depending on the type and amount of coverage you are buying, you may also need to provide medical records or undergo a medical exam for your grandchildren.
4. Review and sign the policy documents. Once your application is approved, you will receive the policy documents that outline the terms and conditions of the coverage. You should review them carefully and make sure you understand everything before signing them. You should also pay attention to the grace period, which is the time frame within which you can cancel the policy without penalty if you change your mind.
5. Pay the premiums and keep the policy in force. After signing the policy documents, you will need to pay the premiums according to the payment schedule you chose. You should make sure you pay on time and in full to avoid lapses or cancellations of the coverage. You should also keep track of the policy details and updates and notify the company or agent of any changes in your or your grandchildren’s situation.

Here are some tips and advice on how to choose the best policy and company for your grandchildren:

• Do your research and compare different options before buying life insurance for your grandchildren

• Read reviews and ratings from other customers and experts to get an idea of the company’s reputation and service quality
• Look for companies that have a strong financial rating, a long history, and a good customer service
• Ask for referrals and recommendations from friends, family, or professionals who have bought life insurance for their grandchildren
• Consider the features and benefits of each policy, such as the death benefit, the cash value, the premium, the riders, the conversion options, etc.
• Choose a policy that fits your budget, your goals, and your grandchildren’s needs and preferences
• Review the policy documents carefully and ask questions if you have any doubts or concerns
• Keep your policy updated and review it periodically to make sure it still meets your needs

Reasons to Buy Life Insurance for Grandchildren

You may wonder why you should buy life insurance for your grandchildren when they are young and healthy and have no dependents or debts. Well, there are several reasons why buying life insurance for your grandchildren can be a smart move. Here are some of them:

Peace of Mind

No one likes to think about death, especially when it comes to children or grandchildren. However, death is an inevitable part of life, and it can happen unexpectedly at any time. Buying life insurance for your grandchildren can give you peace of mind that they will be taken care of financially if something happens to them. Life insurance can help cover funeral and medical expenses, as well as provide a cushion for their parents or guardians who may need time off work or emotional support. Life insurance can also help preserve their memory and legacy by creating a fund for their education, charity, or other causes they cared about.

Financial Planning

Buying life insurance for your grandchildren can also be a way of helping them with their financial planning. Life insurance can serve as a savings vehicle that can grow over time and provide them with a source of income or capital in the future. For example, they can use the cash value of their policy to pay for college tuition, buy a car, start a business, or fund their retirement. They can also use the death benefit of their policy to pay off debts, replace income, or leave an inheritance for their loved ones. Life insurance can also help them with tax planning, as the cash value grows tax-deferred and the death benefit is usually tax-free.

Estate Planning

Buying life insurance for your grandchildren can also be a way of helping them with their estate planning. Estate planning is the process of arranging how your assets will be distributed after your death. It can help you avoid probate, reduce taxes, protect your heirs from creditors, and fulfill your wishes. Buying life insurance for your grandchildren can help you with estate planning in several ways. For example:

• You can use life insurance to create an equal distribution of your assets among your heirs. If you have multiple grandchildren and want to leave them equal amounts of money, you can buy life insurance policies with equal face values for each of them. This way, you can avoid any disputes or resentment among them.
• You can use life insurance to create a trust for your grandchildren. A trust is a legal entity that holds assets for the benefit of another person or group. You can create a trust for your grandchildren and name it as the beneficiary of your life insurance policy. This way, you can control how the money will be used and distributed to them according to your instructions.
• You can use life insurance to cover estate taxes or other expenses. Estate taxes are taxes that are levied on the value of your assets that exceed a certain threshold when you die. They can reduce the amount of money that your heirs will receive from your estate. You can buy life insurance policies that will pay enough money to cover the estate taxes or other expenses that may arise from your death. This way, you can preserve more of your wealth for your heirs.

Here are some scenarios and examples of how life insurance can benefit your grandchildren:

• Scenario 1: You have two grandchildren who are twins. You want to leave them each $50,000 when you die. You buy two whole life insurance policies with face values of $50,000 each and name them as beneficiaries. You pay $25 per month per policy until you die. When you die, each grandchild will receive $50,000 tax-free from their policy.
• Scenario 2: You have one grandchild who is 10 years old. You want to help him pay for college when he turns 18. You buy a whole life insurance policy with a face value of $100,000 and name him as the beneficiary. You pay $50 per month until he turns 18. When he turns 18, you transfer the ownership of the policy to him. He can then use the cash value of the policy, which is about $15,000, to pay for college tuition or other expenses. He can also keep the policy in force and enjoy the lifelong coverage and cash value growth.
• Scenario 3: You have three grandchildren who are 5, 7, and 9 years old. You want to create a trust for them that will provide them with income and support throughout their lives. You buy a whole life insurance policy with a face value of $500,000 and name the trust as the beneficiary. You pay $200 per month until you die. When you die, the trust will receive $500,000 tax-free from the policy. The trust will then distribute the money to your grandchildren according to your instructions, such as paying for their education, health care, or living expenses.

Alternatives to Life Insurance for Grandchildren

Buying life insurance for your grandchildren is not the only way to invest in their future. There are other ways to save and grow money for them that may offer better returns, lower costs, or more flexibility. Here are some alternatives to life insurance for grandchildren:

529 Plan

A 529 plan is a tax-advantaged savings plan that is designed to help pay for education expenses. You can open a 529 plan for your grandchild and contribute money to it on a regular basis. The money in the plan will grow tax-free and can be withdrawn tax-free for qualified education expenses, such as tuition, fees, books, or room and board. You can also change the beneficiary of the plan to another family member if your grandchild does not need or use the money.

Some of the advantages of a 529 plan are:

• It offers higher returns than whole life insurance, as you can invest in various assets such as stocks, bonds, or mutual funds.
• It has lower fees than whole life insurance, as you only pay a small administrative fee or expense ratio.
• It has more flexibility than whole life insurance, as you can choose how much and how often to contribute, change the investment options, or switch the beneficiary.

Some of the disadvantages of a 529 plan are:

• It does not provide any death benefit or cash value that can be used for other purposes.
• It has limited use, as it can only be used for education expenses. If you use it for other purposes, you will have to pay taxes and penalties on the earnings.
• It may affect your grandchild’s eligibility for financial aid, as it is considered an asset of the beneficiary.

Savings Account

A savings account is a simple and safe way to save money for your grandchild. You can open a savings account for your grandchild and deposit money into it on a regular basis. The money in the account will earn interest and can be accessed at any time for any purpose.

Some of the advantages of a savings account are:

• It provides easy access and liquidity, as you can withdraw money from the account whenever you need it without any penalties or restrictions.
• It provides safety and security, as your money is insured by the Federal Deposit Insurance Corporation (FDIC) up to $250,000 per depositor per bank.
• It provides flexibility and control, as you can choose how much and how often to deposit, monitor the balance and transactions online or by phone, or transfer money to another account.

Some of the disadvantages of a savings account are:

• It offers low returns than whole life insurance or 529 plan, as the interest rate is usually very low and may not keep up with inflation.
• It has tax implications, as you have to pay taxes on the interest income you earn from the account.
• It may not provide enough motivation or discipline, as you may be tempted to use the money for other purposes or forget to save regularly.

Trust

A trust is a legal arrangement that allows you to transfer assets to another person or entity (the trustee) who will manage them for the benefit of another person or group (the beneficiaries). You can create a trust for your grandchild and transfer money or other assets into it. The trustee will then distribute the money or assets to your grandchild according to your instructions.

Some of the advantages of a trust are:

• It offers protection and privacy, as your assets are shielded from creditors, lawsuits, or probate. Your trust details are also confidential and not public record.
• It offers customization and personalization, as you can specify how, when, and why your grandchild will receive the money or assets from the trust. You can also include conditions or incentives to encourage certain behaviors or achievements.
• It offers continuity and stability, as your trust will continue to operate even if you die or become incapacitated. Your trustee will carry out your wishes and ensure that your grandchild’s needs are met.

Some of the disadvantages of a trust are:

• It is expensive and complex, as you have to pay legal fees to set up and maintain the trust. You also have to choose a reliable and trustworthy trustee who will charge fees for their services.
• It is irrevocable and rigid, as you cannot change or cancel the trust once it is created. You also have to abide by the rules and regulations of the trust and cannot access or control the assets in the trust.
• It may create conflicts or resentment, as your grandchild may not agree with your instructions or expectations. They may also feel restricted or controlled by the trust.

Conclusion

Buying life insurance for your grandchildren can be a wonderful gift that can provide them with financial security and peace of mind. It can also help you with your financial planning, estate planning, and legacy building. However, buying life insurance for your grandchildren is not the only way to invest in their future. There are other options that may offer better returns, lower costs, or more flexibility.

Before you decide whether to buy life insurance for your grandchildren, you should consider your budget, your goals, and your grandchildren’s needs and preferences. You should also compare different types of policies, companies, and agents to find the best deal and service for your situation. You should also consult with your grandchildren’s parents or guardians to get their permission and input on buying life insurance for their children.

If you are interested in buying life insurance for your grandchildren or want to learn more about it, you can contact us today for a free quote or consultation. We are here to help you find the best policy and company for your grandchildren.