Being a grandparent is one of life’s greatest gifts. And while it’s fun to shower them with toys and clothes, grandparents can play a significant role in financially setting their grandchildren up for the future. Purchasing a life insurance policy for your grandchildren could potentially help pave the path to financial security and provide invaluable peace of mind.
Why You Should Consider Life Insurance for Grandchildren
As extended caregivers, grandparents are eligible to purchase whole life insurance for their grandchildren after obtaining consent from the child’s parent or legal guardian. (Whole life insurance is one of the only types of life insurance that can be purchased for minors.) The insurance can be purchased in the child’s name, which means the child becomes the policy owner once they are an adult.
Whole life insurance is a type of permanent life insurance that provides a set amount of coverage for as long as you live. The premium for whole life insurance never changes—what you pay for the first month is what you’ll pay for every month the policy is in force.
A whole life insurance policy can be a great gift for grandchildren because it can last a lifetime. As long as the premiums are paid, a whole life insurance policy provides a death benefit, accumulates cash value each year and has the potential to give your grandchildren a head start on their financial future. Generally, premiums increase with age, but with a whole life policy, it’s possible to lock in a premium at the insured person’s current age for the rest of their life.
Top 3 Reasons to Buy Life Insurance for Your Grandchildren
There are several reasons to purchase life insurance for your grandchildren, but let’s talk about the top three.
1. Peace of Mind Now
A whole life insurance policy provides a sum of money (called a death benefit) in the event of a passing. This money can cover the cost of funeral expenses, family counseling, any leftover medical bills insurance doesn’t cover, and more.
The death benefit from a life insurance policy allows the family to focus on grieving their loss without the added financial stress of coming up with the money to pay for the final expenses after a loved one passes away.
2. Peace of Mind Later
Purchasing a whole life policy for your grandchild guarantees that coverage will be there even if the grandchild later becomes disabled or develops a chronic illness.
Some disabilities and illnesses make it difficult to get approved for a life insurance policy or they make life insurance very expensive, so securing a policy before the disability or illness exists means coverage at a lower rate that cannot be canceled as long as the premium payments are made. Future insurability is one of the key benefits of whole life insurance that can give you peace of mind.
3. Financial Advantages
Unlike term life insurance, whole life insurance has the potential to accumulate cash value each year. The cash value is a certain percentage of each premium that goes toward a savings component and can be borrowed against in the future. Even better, the cash value is tax-deferred, meaning taxes must only be paid once the money is taken out.
Money can be borrowed from the policy for any purpose, such as providing a down payment on a home, paying for college or even starting a business. This gives your grandchildren a financial foothold when they get old enough to take these milestone steps.
Frequently Asked Questions About Buying Life Insurance for Grandchildren
Can I get life insurance on my grandchild?
Yes, you can take a life insurance policy out in your grandchild’s name after you get the required legal consent from their parent or legal guardian.
Why would a grandparent take out life insurance on a grandchild?
A grandparent might take out a whole life insurance policy on their grandchild because it provides life insurance coverage for the child’s whole life at a fixed premium rate and has a savings account component. This savings account can be borrowed against in the future and can provide the grandchild with a financial head start.
Can grandparents get life insurance on grandchildren without parental consent?
Because children are minors and cannot give their legal consent to a life insurance policy, consent is required from a parent or legal guardian. If you are not their legal guardian, you must obtain consent first. If you are their legal guardian, you can consent on their behalf.
What else should I consider when purchasing life insurance for my grandchild?
When purchasing a life insurance policy for grandchildren, there are a few things to consider. In addition to When purchasing a life insurance policy for grandchildren, there are a few things to consider:
- Obtain consent from your grandchild’s parent or legal guardian. While you can buy life insurance for other people, their consent is required. Since your grandchildren are minors, they cannot legally consent.
- Some insurance plans allow premiums to be paid in lump sums, whereas others require ongoing payments. Make sure the policy you choose allows you to pay how you would most prefer.
- Carefully review the rates of return, surrender fees and any other costs associated with the policy.
Alternatives to Life Insurance for Grandchildren
Buying a whole life insurance policy isn’t the only option in providing a financial safety net for your grandchild. You could also:
- Open a high-yield savings account, which is a type of savings account that has a higher interest rate than the national average.
- Fund a 529 plan, which is an education savings plan that can be used toward education expenses for the account beneficiary. Elementary school expenses, sometimes junior high/high school in some states expenses, and higher education/college expenses are all covered by a 529 plan.
- Open an IRA, which is an individual retirement account. An IRA allows you to save for your grandchild’s retirement on a tax-deferred basis or with tax-free growth (if it’s a Roth IRA).
- Purchase stocks and/or bonds for your grandchild
- Invest in real estate that can be willed to your grandchildren
Let SelectQuote Help Determine if Buying Life Insurance for Your Grandchild is Right for You
Many gifts lose value over time, but as the name implies, a whole life policy is a gift that can last your grandchild’s entire life. Beyond incredible love and support, with a whole life insurance policy, grandparents can give their grandchildren a financial head start and peace of mind.
SeletQuote can help determine what policy is right for you and your family by comparing prices and coverage of some of the most trusted insurance carriers in just minutes. Our technology and team of experienced life insurance agents are able to quickly narrow down the hundreds of life insurance policies available and provide you with quotes from the policies that are tailored to meet your needs—and your budget.