Life Insurance and Your ChildrenSubmitted by Foundation Private Wealth Management on July 15th, 2013
The thought of purchasing life insurance for your children is often a difficult one for families, which is completely understandable. As a parent myself, I don’t like the thought of it at all. Though this may not sound like a typical wealth preservation strategy, it can prove to be a valuable one if the unthinkable were to happen. It not only protects your children in a number of ways, but can also go a long way to protecting the family as a unit. I’d like to quickly go over some of the key reasons why parents (or grandparents for their grandchildren) should strongly consider this as a part of their overall wealth plan.
Protecting your child’s insurability. In most cases, children will grow from babies to adults with no major health concerns that could jeopardize their ability to receive life insurance coverage. Unfortunately, when unforeseen health problems do arise, the fallout is punitive. The costs of a “rated” policy, or the possibility of not being insurable, can be debilitating. By purchasing a "whole life" insurance policy for a child, it may be possible to lock in very inexpensive rates (as healthy children are likely to qualify for preferred rates) for life. Even with term insurance, which is renewable and convertible, the child’s insurability can be protected into adulthood while providing a base amount of coverage.
In some cases, policies can be equipped with the option to purchase additional insurance in the future, at standard rates, without the need to prove insurability. For example, one of our insurance providers offers a $10,000 “Child Protection Rider” that has an added benefit of the ability to exercise a guaranteed insurability option of up to $250,000, when more insurance is required as an adult, without any requirement for medical underwriting.
Protecting your family. The death of a child is the absolutely worst case scenario for any parent and the emotional hardship that follows a tragedy like that is unfathomable. The proceeds from an insurance policy can go beyond the funeral costs, possibly supplementing income if either (or both) of the parents need an extended time away from work. Removing the financial stress from the situation may turn out to be invaluable should the worst case scenario become a reality.
Accumulating and transferring family wealth. When looking to build (or preserve) wealth, especially when the goal is passing it on to the next generation, a Universal Life insurance policy (UL) is a great tool. In this case, the child would be the life insured and the parent would be the policy owner, paying the premiums and controlling the investment account within the policy. In the investment account of the UL, assets can grow tax-free, providing insurance as the child grows while creating a pool of capital as well. Then, when the time is right, the parent can transfer ownership to the child without any tax consequences.
These are just a few of the benefits to insuring the lives of your children. Clearly this is a sensitive topic to think about and discuss, but if you have any questions or concerns that may arise from this brief introduction, please contact us anytime.