People with children and grandchildren often love to shower them with gifts. What if you could provide a gift for your client’s children that could last a lifetime? One that could provide a financial benefit many times greater than the original cost, and that could in turn benefit their own children, all on a guaranteed basis?
That gift is life insurance, and you have the power to help your clients realize the value of purchasing this valuable gift for their children.
A cash-value life policy taken out on a minor could reap powerful benefits for a family. The cost is typically extremely low compared to the face amount, and yet both the premium and benefit can be guaranteed for life. When the minor reaches adulthood, the policy can be gifted to them.
Here are some of the advantages of encouraging your client to purchase life insurance policies for their young children.
- Lowest possible pricing. This gift works very well for boys and girls aged newborn to 20. Attractive pricing can be available even for children who have medical conditions. The children can lock into the very low pricing available at young ages, and yet the price can never increase.
- Insurability secured. If the children develop medical conditions later in life, or take on high-risk hobbies such as scuba diving or mountain climbing, the client won’t have to worry about going to market and paying a higher rate – or possibly getting declined altogether.
- Significant cash values. A large amount of cash can accumulate over time for use as a mortgage down payment, business capital, or retirement supplement. If your client buys the policy when their child is very young, there is plenty of time for the cash to accumulate into a truly valuable gift for the child.
- Limited payments. The product could be designed to receive just one single payment, or payments for a set amount of years.
- Increasing coverage. With the right product, the survivor benefit can increase over time.
Purchasing policies for adult children
What about adult children? Is it a good idea for an elder parent to own, or pay for, life insurance on an adult child?
Baby boomers are facing a broad array of financial challenges today. They may recognize the need for life insurance, but they may be hard-pressed to pay the premium. Many look to their parents for financial assistance.
If you have a senior client who decides to purchase a life insurance policy for their adult child, there are two possible options for policy ownership. In the first scenario, the elder parent owns the policy. If the client decides this is the option they wish to go with, the underwriter will need to be convinced that a legitimate insurable interest exists. For example, is the elder parent financially dependent upon the adult child? Does the adult child owe him any money? Are they partners in a business? Also, if the elder parent owns the policy, then the life insurance contract becomes an asset in his name. This may raise undesirable tax consequences. Finally, there is the question of estate planning. If the life insurance asset is to be added to the estate of the elder parent, to whom will this money be passed when the estate is settled? If the life insurance is intended to support the adult child’s spouse, then legal measures must be implemented to make sure this takes place.
An alternative scenario calls for the adult child to own the life insurance policy and name someone else as the beneficiary. The elder parent simply pays the premium, or lends the premium funding to his adult child. Here, the adult child becomes dependent financially on the elder parent. There is certainly some risk involved for both parties. What if the dependency creates resentment, however unintentional, and strains the relationship between parent and child? What if the elder parent experiences a financial or health crisis and suddenly needs the money back?
Taking out life insurance on an adult child is a strategy that calls for a large amount of caution. If your client is considering this strategy, here are some guidelines to consider when working with the family.
- Carefully assess the financial situation of the adult child, as well as the elder parent. Try to preserve independence to the greatest extent possible, for everybody. This will be best for the relationship.
- Consult with tax and legal professional partners to identify the financial and legal tools most appropriate for your client’s particular situation.
- Be sure to get your client prequalified for coverage.
Life insurance can be an enormous gift, and that is especially true when a parent gives the gift to a child. As long as guidelines and circumstances are carefully considered so that the best decision is made for everyone involved, the choice can be a good one for many clients.
Steven H. Kobrin is an independent life insurance broker and nationally recognized expert in field underwriting for people considered high risk. He can be reached at (866) 633-1818 or [email protected]