As a father and grandfather, leaving a legacy has become more personally important to me. If you’re a grandparent or parent of children under the age of 18 years old, you may have wondered what kind of lifetime impact you can make for them…I know I have.
I’d like to introduce you to a concept that Barb and I will be providing for our grandchildren….I call it a Legacy Gift. This Legacy Gift uses a whole life insurance policy as a funding mechanism to grow cash for children over the course of their lives. That’s where the legacy part comes in. Allow me to explain…
A grandparent or parent (or any other relative adult) can purchase a juvenile insurance policy with a whole life permanent policy (I recommend the 10-pay plan). The insurance is easy to purchase as the child doesn’t need to go through any medical exams. The life insurance portion is minuscule due to their age, so the premium amount chosen goes mostly into their cash value.
Example: The grandparents purchase a whole life policy for their grandchild and fund it over a 10 year period. They are the “owners” of the insurance policy. The parents are the beneficiaries of the policy in the event of death. The policy has a cash value component and grows at a guaranteed 4% rate (pretty good for most guaranteed investments!); after 10 years of premium payments, the policy is paid up forever.
The cash value continues to grow over the life of the child. No other payments ever need to be made. Here is where the legacy part comes in:
The grandparents can turn over the policy – in essence gift to policy and it’s cash value – when the child becomes an adult (at whatever age they choose). That cash value can be used for a number of things like college education, starting a business, or simply allowing it to grow as part of a retirement plan. In fact, a policy starting as a toddler and running into the ages of 70 or 80 will likely have significant values. I’ve seen illustrations going into the $300,000 range for a policy with a $10,000 investment. That’s a legacy!
Additionally, the value of lifetime insurance can’t be overstated. People can become uninsurable at any age due to illness and disease. These policies, once paid up, are permanent. They may actually be set up to increase the death benefit over years. Here is a case where the value to child turned adult can be significant for their family of the future.
Here’s the deal: I think it’s safe to assume that most people want a strong financial future for their grandchildren and children. The Legacy Gift is a tremendously generous way to get them started. Regardless of when they might utilize the cash value, your gift will have turned into significant money when it was most needed.
The fine print: Depending on how it’s structured, there could be a gift tax on the benefits. There are several ways to structure the policy to avoid that (e.g. trusts). This is part of the proper programming of it, and should be discussed at length. That being said, the guaranteed nature of the growth and protection is something I know we want for our grandchildren, so we are taking this route.
If you’d simply like to learn more about how the Legacy Gift might work in your family’s life, contact me. There’s no obligation; I’d love to talk with you about how you can make the difference in the lives of the children in your life.
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