Out of the Box Thinking: A Gift of a Lifetime

Out of the Box Thinking: A Gift of a Lifetime

Most people put life insurance in a mental box. They think of it as income replacement in the event of the death of the primary wage earner, a way to pay off a mortgage or provide an asset base for loved ones. Whole life insurance, however, has many other potential uses. One of the most effective ways to use whole life insurance is to purchase a policy for a minor as a way fund a child’s yet-to-be-defined aspirations and secure that child’s financial future with:

  • A guaranteed amount of life insurance protection to help protect the child’s family.
  • A financial resource, with guaranteed growth, available for important life events, like paying for college, funding a wedding, making a down payment on a house, or starting a business. Also, unlike popular college savings plans, like 529 plans, the policy’s cash value is not considered for financial aid determinations.
  • Cost effective coverage with optional guarantee of future insurability. Many whole life insurance policies for minors offer additional insurance riders, which may be purchased for an additional cost.

Life insurance purchased for a minor doesn’t fall neatly into people’s preconceived notions, so it requires the dispelling of assumptions and educating clients on the many lifetime benefits whole life insurance has to offer. Whole life insurance on a minor has some unique considerations which you should explore before presenting to clients:

Special Considerations when writing a whole life policy on a minor

Face Amount. The amount of insurance allowed on a minor child is determined on a case-by-case basis and may be limited to a proportion of insurance coverage on the lives of the child’s parents. In families with multiple children, each should carry equal coverage unless circumstances warrant otherwise.

Ownership. Because minors lack legal capacity to enter into a contract, the donor could own the policy and then decide at some future date, to gift the policy. Other common forms of ownership include custodianship for the child under the Uniform Transfers to Minors Act or putting the policy could be into a Minor’s Trust or Irrevocable Life Insurance Trust.

Premium payments. Typically, the intent is to satisfy all premium obligations and not leave the child with future financial obligations, making 10, 15 or 20 pay scenarios most attractive.

Ability for enhanced performance. The average age of whole life purchases is between 35-55, which gives a policy on a minor a 35-year head start to enjoy the power of tax free compounded growth. Therefore, when illustrating juvenile life insurance, the cash value over time paints a compelling picture. The policy, however, has the potential of performing even better than illustrated. Here’s why. Most juvenile applications qualify for non-medical underwriting and receive juvenile health ratings. When the child reaches age 18 and subject to underwriting evaluation, he or she may be eligible for an upgrade in classification. A rating improvement allows future dividends to be earned on a more favorable basis than currently.
If your clients want to help their children or grandchildren reach their dreams, encourage them to think outside the box by exploring the lifetime benefits whole life insurance has to offer.

Massachusetts Mutual Life Insurance Company (MassMutual) helps brokers keep their clients covered through local support services, a wide array of high-quality insurance products, estate and business planning expertise, and a relationship-based approach.

Melissa Teixeira, ChFC, CLTC a Vice President at Fifth Avenue Financial who has nearly 20 years’ experience assisting financial service professionals help clients establish the financial security they want for themselves, their families and their businesses. mteixeira@fifthavefinancial.com 212.642.4829