If you are a grandparent, you’re probably already investing in the financial future of your grandchild. Perhaps you make regular contributions to a college savings fund or tuck savings bonds into their birthday cards. But have you thought about buying them their own life insurance policy?
Life insurance for children is not as unusual as it may sound. At First Command, we’ve long recommended that parents consider whole life insurance policies for their children. Our advice is the same for grandparents. By purchasing coverage when your grandchild is young and in good health, you can lock in a low premium for the life of the policy. Better yet, you can guarantee your grandchild’s ability to purchase additional insurance if they need it as an adult.
The truth is the likelihood of becoming uninsurable (or being able to obtain additional insurance only at higher-than-normal rates) is far greater than most people think. Guaranteed insurability assures the availability of future coverage at standard rates, even if your grandchild becomes uninsurable. The increased coverage will be available regardless of health factors, avocation, occupation or geographic location. The issuing insurance company guarantees this additional coverage, without the usual underwriting considerations. Standard premiums are also guaranteed even if the insured is seriously ill, otherwise uninsurable or participating in hazardous activities. The applicant simply tells the insurance company that they want what was guaranteed in their original policy.
How does it work? You buy a whole life policy now and attach a special rider known as the Option to Purchase Additional Insurance, or OPAI. Then, at specified ages or life events such as marriage and the birth of children, the policyholder can buy a specified amount of coverage at standard premium rates for their age and gender, no questions asked.
That is no small consideration. Even some of our relatively young clients - outwardly healthy people in their 20s and 30s - have suddenly found themselves reclassified as high risk. Nonstandard, rated up, substandard - these are the industry terms that mean they pay more for insurance. In many situations, additional insurance is not available at any price.
By no means is guaranteed insurability the only benefit of a whole life policy. Other features include guaranteed cash values. While we believe it is inappropriate to recommend life insurance as an investment, we do acknowledge that the accumulation of cash value in a whole life policy can provide additional security and flexibility. Cash values can be:
- borrowed at the interest rate stated in a policy,
- used to purchase a reduced amount of paid-up coverage, or
- collected upon the surrender of a policy.
These guarantees continue to make whole life an ideal choice for many Americans. During the recent economic downturn, middle-class consumers have been showing a growing interest in managing financial risk through the use of whole life and other permanent life insurance products. The First Command Financial Behaviors Index® reveals that 39 percent of middle-class Americans own some form of permanent life insurance coverage. http://www.firstcommand.com/news-events/2010/09/15/permanent-life-insurance-grows-in-popularity-among-middle-class.html And the most popular permanent insurance product is whole life, which is owned by 26 percent of middle-class families. Among those who don’t own a permanent life policy, one in four say they are likely to purchase this type of coverage in the future.
So how do you decide what whole life policy is right for your grandchild? Our First Command Financial Advisors are ready to help. They can assist you in evaluating insurers and their products so you can find the right match. By making a gift of a low-premium whole life policy, you can help provide the foundation your grandchild will need for a secure financial future.
About the First Command Financial Behaviors Index®
Compiled by Sentient Decision Science, LLC, the First Command Financial Behaviors Index® assesses trends among the American public’s financial behaviors, attitudes and intentions through a monthly survey of approximately 1,000 U.S. consumers aged 25 to 70 with annual household incomes of at least $50,000. Results are reported quarterly. The margin of error is +/- 3.1 percent with a 95 percent level of confidence. www.firstcommand.com/research
About Sentient Decision Science, LLC
Sentient Decision Science was commissioned by First Command to compile the Financial Behaviors Index®. Sentient is a full-service market research firm with special vertical expertise within the financial services industry. Sentient specializes in advanced research design and statistical analysis of behavioral and attitudinal data.
About First Command
First Command Financial Services and its subsidiaries, including First Command Bank and First Command Financial Planning, assist American families in their efforts to build wealth, reduce debt and pursue their lifetime financial goals and dreams—focusing on consumer behavior as the first and most powerful determinant of results. Through personalized financial plans that emphasize accumulating wealth while reducing risk, First Command Financial Advisors have established lasting relationships with hundreds of thousands of client families since 1958.
First Command Financial Services, Inc. is the parent company of First Command Financial Planning, Inc. (Member SIPC, FINRA) and First Command Bank (Member FDIC). Financial planning services and investment products, including securities products are offered by First Command Financial Planning, Inc. Insurance products and services are offered by First Command Financial Services, Inc. Banking products and services are offered by First Command Bank. Securities products are not FDIC insured, have no bank guarantee and may lose value. In certain states, First Command Financial Services, Inc. is a separately registered domestic corporation and does business in California as “First Command Insurance Services.” A financial plan, by itself, cannot assure that retirement or other financial goals will be met.