When you think about all the things you want to purchase for your grandchild, life insurance would likely be near the bottom of the list. While it may not be the most exotic purchase, by the end of this blog I hope life insurance would be up for consideration. Life Insurance for a child or grandchild offers three important advantages: it’s inexpensive; it provides protection for the unexpected; and certain types of life insurance could help protect your child’s or grandchild’s insurability.
First, life insurance is inexpensive. The way life insurance works is that the younger and healthier you are, the less the coverage will cost. Life insurance premiums are based on life expectancies and risk factors. Risk factors would include things that could adversely affect life expectancy, for example, health issues; habits like smoking or sky diving; and family history.
Let’s compare an 18-year-old nonsmoker with a 40-year-old smoker with high blood pressure and heart issues. The life insurance company would see the 18-year-old as a better risk based on age and the other risk factors (smoking and health), so the same coverage would cost less for the 18-year-old.
Second, life insurance’s main purpose is to provide a tax-free death benefit. I know it’s not a pleasant thought, so we will not dwell on it too much, but answer this question: Would it be better to have a tax-free benefit or use credit cards or a loan to pay for final expenses?
Finally, depending on the product purchased, you could protect your child’s or grandchild’s insurability.
As a parent or grandparent, you have a couple of options available for your child or grandchild’s insurability. First is term life insurance, which would provide coverage for a fixed number of years. A term policy could be converted later for up to the original face amount to a permanent form of life insurance without proof of insurability.
The other option would be a permanent life policy, which would be more expensive; however, it could offer a major advantage. Permanent forms of insurance can offer an insurability rider that allows purchasing additional coverage, without the proof of insurability. This protects your child or grandchild in case they develop a medical condition, making coverage more expensive or unavailable down the road. Just as insurance is more expensive as you age, some medical conditions make life insurance unobtainable.
Regardless of the type of coverage you select, purchasing life insurance for a child or grandchild is not a bad idea. The type, coverage amount and contract structure would vary based on each individual situation, and your Ayres Group agent can help you evaluate your options.