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BLOG 03/25/2020

Do you need life insurance for your grandkids?


They say that grandparenting is the reward for parenting. If you’re a grandparent yourself, you’re likely soaking it all in. You can’t even imagine your life without these new little people, and part of that picture is keeping them safe and protected. The protection grandparents want to provide their grandkids is natural – but should it include life insurance? Is purchasing a policy for your grandchild an option? Would life insurance for grandchildren cover important costs like final expenses? 

The short answer: yes. As a grandparent, you can insure your grandkids in some cases. Depending on your situation, purchasing life insurance for your grandchildren may be a good bet to help protect them down the road. Here’s what to know.

Table of contents

 Can grandparents take out life insurance on a grandchild?

When it comes to buying life insurance for grandkids, the process all depends on your relationship with them. In general, you’ll need to demonstrate an “insurable interest” in anyone for whom you purchase life insurance, including insurance for children, spouses or parents. There are a couple of ways that you can do that:

Generally, you need a parent’s permission before you buy life insurance for grandchildren. Check on the requirements in your area, as they vary from state to state. A life insurance agent can help answer any questions you may have about the process.

What’s the best type of life insurance for grandkids?

Many companies sell life insurance policies that are specifically designed for minor children. These are typically whole life policies, which means a life insurance company will pay out a death benefit if the worst happens and they also build cash value over time. Generally, you can buy the insurance policy in your grandchild’s name, which means they’ll become the owner of the policy when they become an adult.

Since life insurance coverage levels are usually based on income, and kids don’t have any income, coverage amounts for these policies are usually pretty low (around $5,000). The approval process is also fairly simple, since most companies don’t require the child to go through a medical exam.

Low coverage amounts also mean you likely won’t have to pay taxes if you give a policy as a gift to a grandchild. Under current estate planning laws, you can purchase up to $15,000 of coverage per child without incurring gift tax.

When you’re shopping for a life insurance policy, here are a few questions to ask your life insurance agent:

  • Does the policy require parental consent?
  • How much are the premiums (payments)?
  • How will I pay the premiums (i.e., lump sum or monthly payments)?
  • Will my grandchild need to take a medical exam or answer any health questions?
  • Is there a guaranteed rate of return if it’s a whole life policy?
  • What are the surrender fees or other costs associated with the plan?

 Arming yourself with the facts will make the process that much simpler for you and your family.

 What can life insurance for grandkids help cover?

The biggest reason to buy life insurance for your grandkids is to help ensure their financial security down the road. By purchasing life insurance for a grandchild while they’re still young and healthy, you can help make sure they’re covered later in life. Once they’re an adult, they can convert the policy to coverage of their own that no one can take away from them – even if they develop a condition that might otherwise prevent them from qualifying for life insurance. Since you’re buying a policy while your grandkids are still young and likely in good health, the premiums will also be lower than if they wait to buy as an adult.

Most policies for children are whole life policies, so they build up cash value over time. Although the coverage amounts are small, that means life insurance can also offer a little extra nest egg to cover college costs or other expenses later on. Unlike a 529, money in a life insurance policy won’t count against your child when applying for financial aid for college.

 And while life insurance for children is about protecting their future, a policy can also help pay for medical bills or final expenses if they pass away unexpectedly. This gives a grieving family one less thing to worry about in case a terrible loss occurs.

Insuring your grandkids’ future

As a grandparent, the instinct to protect the little ones in your life is natural. You may have only considered life insurance for you or a spouse until now, but life insurance can also be a helpful planning tool for the next generation and beyond. That way, no matter what happens, you can enjoy each and every moment you have with your grandkids as you watch them grow.

Need help comparing life insurance options for your grandkids (or yourself)? Our agents are just a call away.

 

At eFinancial, our goal is to make life insurance simple, affordable, and understandable for everyday families. This content is intended for educational purposes only. Each post is carefully fact-checked, reviewed and updated regularly to ensure the information is as relevant as possible.