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Give Your Baby the Gift that Keeps on Giving: Life Insurance
October 14, 2016 | Molly Culbertson; excerpted from Thrivent magazine
Family and friends flood newborns with welcome gifts, from booties to blankets. But there’s one gift that can top them all: life insurance.
Who can give this gift?
Any parent, grandparent or legal guardian with an insurable interest in a child can purchase a life insurance contract for that child. (You have an insurable interest if the child and beneficiary share a close relationship of blood or financial dependency, or if the beneficiary would suffer an economic loss upon the death of a child.)
Even if your children are older, a gift of life insurance has many benefits.
The Living Benefits of Children’s Life Insurance
Purchasing permanent cash value life insurance for your children offers peace of mind as well as a number of additional benefits.
Future Insurability: “A medical condition, chronic illness or disability can make life insurance much more costly or even impossible to get,” says Thrivent Financial Representative Andrew Bolin of St. Louis. Buying a life insurance contract for a child means the child always will be covered as long as the premiums are being paid.
You also can add a Guaranteed Purchase Option to a child’s life insurance contract, which allows the child to purchase more insurance later—up to nine times between the ages of 16 or 18 and 43—without providing evidence of insurability. This means if they become uninsurable due to illness or accident, they still can increase the value of their life insurance.
Cash Value: Paying the monthly premiums is a simple way to save money and build up cash value. “When the kids get older, their life insurance contracts may have enough cash value that they could borrow from them for things like college tuition, the cost of a wedding or a down payment on a house,” Bolin says.
You may be able to borrow* from a life insurance contract’s cash value without a credit check and without paying taxes.** (You’ll pay income taxes on gains only if you choose to take a surrender of cash value from the contract versus borrowing from the cash value. If the contract is a Modified Endowment Contract, the loan and interest are taxable.)
Disability Payments: Adding what’s called a waiver of premium rider to a child’s life insurance contract can cover the cost if, as an adult, he or she can’t pay the premiums because of becoming disabled.*** There may be an additional cost for this rider.
Time to Heal
“When a friend recently lost a child, I saw how a life insurance benefit gave him a little extra time to try to find his ‘new normal,’” says Natalie Kratzer, a Thrivent Financial representative in Hummelstown, Pennsylvania. It gives the family time to heal. “The proceeds from the death benefit can help pay for time away from work, costs associated with counseling and other support. Often families will make a charitable contribution or establish a foundation, scholarship or memorial to honor the child. This can help the family and friends grieve.”
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* Loans and surrenders will decrease the death proceeds and the cash surrender value available to pay insurance costs. Surrenders may generate an income tax liability and may be subject to a decrease charge. A significant taxable event can occur if a contract terminates with outstanding debt. Contact your tax advisor for further details. Loans and surrenders may cause a contract to lapse or terminate without value. Loaned values may accumulate at a lower rate than unloaned values. Contractual charges may apply.
** The federal income tax treatment of life insurance is unclear in certain circumstances. A qualified tax advisor should always be consulted with regard to the application of law to individual circumstances. Thrivent Financial does not make any guarantee regarding tax treatment (federal, state or local) of any contract or of any transaction involving a contract, particularly after insured age 100. Life insurance proceeds may be subject to federal and/or state estate and/or inheritance taxes.
*** Not all riders are available in all states. Limitations and exclusions may apply.
Insurance products issued or offered by Thrivent Financial, the marketing name for Thrivent Financial for Lutherans, Appleton, WI. Not all products are available in all states. Thrivent Financial representatives are licensed insurance agents/producers of Thrivent.