4 Reasons to Buy Whole Life Insurance for Children this Christmas
A blog by Daniel Brookman of Stolly Insurance.
As your children make out their Christmas wish lists for Santa this holiday season it is not likely you will find a whole life insurance policy popping up anytime soon. However, as responsible parents and grandparents it’s important to consider the potential benefits that special child in your life will reap from a whole life insurance policy long after the toys, gadgets, and gizmos are piled up in a landfill. I’m going to offer you the top four reasons I believe whole life insurance should be on your holiday shopping list for the children in your life this year.
1 ) Cash value build up can grow quickly, safely, and be accessed tax free.
For the life insurance layman, cash value is the component of a permanent life insurance contract that accumulates money the policyowner can access in the future. Since the cost of life insurance protection is lowest when the insured is young, the low cost of life insurance on children allows for more cash value build up since a lower portion of the premium is being used to pay for the insurance itself.
Also, the cash values are often viewed as safer than a market investment since it’s guaranteed and backed up by the claims paying ability of the life insurance company who issues the policy. If a participating plan is issued from a mutual life insurer, the policy will also be eligible for dividends which give the policyowner potential for greater gains on their money.
Because of some inside baseball that includes the difference between FIFO (first in first out) and LIFO (last in first out) taxation, policyowners can access cash values that accumulate tax deferred on a tax free basis when they take it out. Of course, there are rules within the internal revenue code and an experienced agent will have to help you to make sure you’re able to do this properly. But it is one strategy for growing wealth safely and tax advantages.
2) Cash value can be leveraged to help pay for college, weddings, or first home purchases.
Now that you know how whole life insurnace can accumulate cash value, grow more quickly when the insured is younger, and when done properly the funds can be used tax free, you may want to know what the money can be used for. Well, the money can be used for any purpose the policyowner sees fit. Many parents will leverage the cash value inside of a whole life insurance policy to help finance a college education, a wedding, or a first home purchase.
Many parents are funding 529 plans to help pay for higher education costs for their children and this is a fantastic strategy to use for higher education costs. The 529 plan has many tax advantages, even some that whole life insurance does not, and the 529 plan often has less fees and can experience greater gains through stock market particpation. However, 529 plan funds must be used for qualified higher education expenses. If your child doesn’t use the money for qualified higher education expenses, the funds inside the 529 plan either have to be rolled over to another family member for higher education expenses or the earnings portion of the withdraw will be subject to federal and state income tax as well as a 10% IRS penalty. There are exceptions that include the death or disability of the beneficary that will waive the 10% penalty, but the gains inside the account will be taxable. Also keep in mind that anything subject to market gains are also subject to market losses so 529 plan sponsors must be wary of market volatility.
3 ) Guaranteed future insurability.
As a life insurance agent I am frequently meeting with individuals, even folks in their 20’s, who have significant health issues that make it difficult, expensive, or impossible to attain life insurance coverage. When you buy a child whole life insurance when they’re young and healthy, you’re guaranteeing them future insurability no matter what happens to their health down the road. This maintains that their families will be protected because a parent or grandparent had the foresight to buy them a life insurance policy as a child. Also, there is virtually no underwriting so policies are quick and easy to issue in most cases.
4 ) In the case of an absolute tragedy, there is death benefit protection.
No one wants to think about the unimaginable pain and suffering that comes with losing a child. While it’s extremely uncomfortable to think about it, it isn’t something that shouldn’t be protected against. Even though whole life insurance has so many living benefits, as a life insurance policy it still does have the very important feature of a death benefit. What a life insurance death benefit provides a grieving parent or grandparent is financial security, the ability to take some time off work, and make sure all medical and funeral expenses are taken care of. Grieving in dignity and having the opportunity to heal without stressing about bills and final expenses go a long way in making a tragedy just a little easier.
If you found this information useful and would like more information, Stolly Insurance Group has agents on staff to answer your questions.