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Looking Outside the Box: Life Insurance for Kids

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Giving your children a gift they can use for the moments and memories they will experience in their lifetime!

There is nothing more rewarding as being a parent, but with that comes the extreme responsibility you feel.  You have been granted the task to raise a baby into an incredible person and a meaningful member of society.  From the day you hold your bundle of joy, your mind is constantly going to a place of protecting and helping your child grow.  You want the very best you can for them, many times sacrificing the nicer things in life so that they can have them. You spend hours researching the internet, Pinterest or blogs trying to find the best diapers, schools, health treatments and vacations.  You want them to be happy, healthy and have the tools to be financially successful in life as they grow up, enter college and beyond.

Parents ask me what is the single greatest gift they can give their kids financially, I confidently say, life insurance.  I guarantee you 99% of them expect me to say a 529 college account. The astonishment in their faces says it all.  “Did this women just tell me that the greatest gift I can give my kid is something they have to die for?!” Needless to say, it is always a touchy conversation to begin with parents, but by the end of it, the majority of my parents I work with agree, and indeed purchase this life changing gift. So, why life insurance?  Over the next few paragraphs I want to give you a 30,000 foot view of the most incredible way to show your children you love them by helping your child get on their feet financially, protect their insurability, and even leaving your grandkids a gift of a tax free inheritance.

Protecting the financial stability of your child.

Parents consistently come to me asking about a 529 college savings plan with the hopes of helping their children receive a good footing on their future and financial outlook. When I ask them if they have ever considered a permanent life insurance policy most have never even been presented the option, or they only know about the Gerber commercials! Parents, life insurance is a beautiful tax advantaged way to give your kids a future lump sum of money that can be given to them tax free, if structured correctly, and create a lasting legacy for your grandkids.

Let me explain: Louise* is a sixty year old that had her mother pass away and leave her an estate to settle.  As she was going through her mother’s documents she noticed a life insurance policy, not on her mom, but on her! It was purchased when she was just a small child and it was a permanent life insurance policy.  The premiums were really low (due to her age at purchase, and inflation) so she did not think much of it. She requested we call the carrier to find out if there was any value in the account at all. She was blown away to find that there was over a million dollars in her cash value!  That moment was life changing for her. It changed her entire retirement landscape.  Louise’s parents were the owners of her policy and slowly put away small sums of money to her account and over the years that money grew substantially, never went down during market drops and steadily grew into a life changing gift.  To me, this is probably one of the coolest features of life insurance.  As the parent you control the money and when you want to give it to your child. There are no age restrictions such as UGMA or UTMA’s, college requirements with a 529, or tax implications such as an individual account with stocks.  It is a vehicle that, if funded correctly, can give your child money when they need it and how they need it with you as the parent confident that it is going towards the best of what your child needs. Protect your child’s retirement, college savings, and future financial needs without the stress of the market attached.

Protecting your children’s insurability:

I have a client named Mark* who is 27 years old. He came to me two years ago, $90k in private school loans, making a starting professional salary and a major heart condition. He was interested in financial planning, additionally he also was concerned about his private education loan. Unlike federal loans, private loans do not die with an individual, they are left in a person’s estate as outstanding debt. In Mark’s case, his aunt was his co-signer and he was very concerned that if something happened to him that he would be leaving her with a significant amount of debt to burden.  I suggested a simple life insurance policy to pay her if he suddenly passed. As we started the underwriting process Mark started opening up about his medical history. Let me preface this, Mark is probably one of the most “in-shape” guys I know!  It was a total surprise when he let me know that he had a major heart condition and was going to have open heart surgery sometime in the next few years.  Because of this, Mark was completely uninsurable from any carrier. The pain from his realization hurt me to my core.  He struggles with the fact that he is not yet a husband and father and he can’t quality for a minimal amount of coverage.  He wishes with all his heart that his parents had purchased a life insurance policy on him when he was a kid before being diagnosed with a heart condition, insuring he would be able to have the future coverage he is going to need as a husband and father. Mark has since gone through heart surgery and is doing great. We still cannot get a company to cover him for at least a few years, and even then, if we can get him coverage, he will always have a higher rating due to his health.  He looks a life insurance as one of the greatest gifts parents can give a child and will be one of the first things he will do as a parent. Your children will thank you for investing in them early, recognizing the stresses they endure as adults. I would love to say that Mark is a one off situation, but he is not. In the last year alone I have told five clients they are rated extremely high due to their health or are completely uninsurable. It is a gut wrenching conversation, and an expensive life moment for them. Many cannot afford the coverage they need because the premiums are so high due to health conditions. This is not what you as parents had planned when you thought about your kids purchasing their own life policies someday.  Parents, protect your children’s insurability young, they will never be younger or healthier than they are now!  

Generational Gift Transfer:

One of the greatest features of life insurance is that the death benefit is passed tax free to the beneficiaries. With children’s life insurance policies when they are first purchased we place the parents as the beneficiaries in case of unforeseen death of the child, however the vast majority of our children policies mature and grow for decades with our clients. Once our client’s children have had their own kids, we place the grandkids as the beneficiary of the policies. Someday, when your child has lived a full life of memories, raising their kids and creating their own family legacy they will have a life insurance policy that you took out on them, has a death benefit that has increased, and once your kids have taken the cash value they need while fully living their lives, the death benefit will be passed onto the next generation, your grandkids, tax free.  I cannot think of a greater legacy to honor the lives of your children and additionally to pass on another wave of success for your grandkids and their grandkids.  Think about it, you were a parent that had a dream, a dream to raise a child that could change the world, and they did, and now your grandkids are going to get the same opportunity.

One last note, parents a lot of the time we put the oxygen mask on our children before ourselves. It is the nature of being a parent.  It is a normal instinct.  You want to invest in your children’s future. Can I make one last plea? Please carry a policy on yourself.  Your children need you. If for some unforeseen reason you do not get to be there for the big moments in their lives such as graduations, weddings, or birth of their children, leave them the oxygen mask of life insurance to remind them you are celebrating those big moments with them.  It is a continual reminder of the commitment you made when you became their mom or dad. To take care of them no matter what happens to you. Life insurance is for those you love and those left behind. It is a gift that is a beautiful and precious reminder of life and the moments of celebration in it.

[AUTHOR: Amy Ackerman is the Vice president of Insurance at Alliance Wealth Strategies.  She is fourth generation in her field and is passionate about working with women and their families to gain financial footing and achieve their financial goals.  Amy.Ackerman@alliancewealthstrategies.com | 805-621-7006]

Mention Parent-Click and receive a complimentary review of your current insurance policy for price and coverage.  Additionally, request a sample children’s life policy to see the incredible benefits yourself!  Policies can be designed for any monthly budget amount.

August 5, 2015

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