Laura Berry is a former State Farm insurance producer and insurance expert.

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Dan Walker graduated with a BS in Administrative Management in 2005 and has been working in his family’s insurance agency, FCI Agency, for 15 years. He is licensed as an agent to write property and casualty insurance, including home, auto, umbrella, and dwelling fire insurance. He’s also been featured on sites like Reviews.com.

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Reviewed by Daniel Walker
Licensed Car Insurance Agent

UPDATED: Jan 25, 2017

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Don't miss these facts...

  • Grandparents are able to legally purchase life insurance on their grandchildren
  • Grandparents can give a wonderful gife to their grandchildren and guarantee future insurability of grandchildren
  • The final expense cost can be guaranteed by grandparents purchasing life insurance for their grandchildren
  • When the grandchild reaches adulthood, the life insurance policy purchased as a child turns into a very fine investment

It is not unusual for grandparents to purchase and pay for life insurance on their grandchildren.

The purpose is not to profit in any great way by the death of the grandchild, but it is for the reason of giving the grandchild a good start on their life insurance program.

The amount of life insurance coverage is not of a great amount, only as much as it might take to cover final expenses should the grandchild die.

Grandparents will purchase and pay for the policy or policies when the parents won’t or cannot afford to extend such a transaction.

The odds of a young child passing away is much less than those of an adult, but nevertheless, if the death of a child occurs, the money still has to be available for a funeral and burial.

The beneficiary of the policy can be the parents, grandparents or a local funeral home.

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Money For College

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In some circles, it has been advised that life insurance purchased for grandchildren can be permanent life insurance which will then accumulate money for the purpose of funding a college education.

This strategy may, or may not be an effective way to accumulate money for that purpose, depending upon the type of policy purchased.

If the accumulation of cash values is compared, it will be more effective to use a policy that is taken out on an adult than a policy that is covering the life of a child.

This is because the premiums required for the life of a child are so small that there is not sufficient money going into the policy which accumulates to very much money.

If a 15-year endowment policy were to be available for a child, that might be a policy that would work.

An endowment life policy would mature for the face amount in a certain period, in this case, 15 years.

So if a 15-year endowment policy were purchased on the child for $25,000, it would mature for that amount in 15 years and would be paid to the owner of the policy.

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Future Insurability

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Juvenile policies are available from some life insurance companies that start out with a modest amount of coverage at the younger ages, and then expands the coverage at older ages.

For example, when a child is young, a policy is purchased for $2,500, and at age 21 the death benefit protection grows automatically to 5 times the original amount and becomes $12,500.

This type of plan was nicknamed the “Jumping Juvenile” policy, and it gained great popularity.

A very popular feature that has come about also guarantees future insurability for a child.

The guaranteed insurability rider is attached to a policy purchased on a child and this feature is used to purchase more life insurance coverage at stated ages of the child in the future for the same amount of the original policy.

For example, a $10,000 whole life policy is purchased on a 7-year-old grandchild.

The guaranteed insurability rider is attached to the policy which would then give the child the option to add additional policies at ages 21, 24, 27, 30, 33, and 36.

This allows for $60,000 of additional life insurance coverage, regardless of that child’s health in the future.

Thinking Ahead

Life insurance is not a subject that most people dwell on. For the most part, it is not the primary focal point of people’s lives, in spite of the fact that when it is needed, it can be the most important subject of the moment.

It is life insurance that is in effect when a breadwinner dies that saves the day and provides funds for a family or business.

It can make the difference as to whether or not a family can stay in its financial world, or it has to move into more realistic conditions. Those conditions are usually poorer and more sparse than before.

The Specifics

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Grandparents are considered to have an insurable interest in their grandchildren, as they are many time alternate caregivers to them.

They have the legal right to purchase a life insurance policy on their grandchildren for that reason.

They can be the owner and premium payor of the policy, and they can name the parents as beneficiary, should the child pass. The parents would normally be the ones responsible for the payment of final expenses.

The Gift of Life Insurance

Grandparents can give the assurance that the grandchild will have a life insurance policy in adulthood by purchasing a juvenile policy while the insured is still a child.

The purchase of a whole life policy is very inexpensive at younger ages and by the grandchild is an adult there will be a good bit of money in the cash value, and yet the premiums will be very low.

By stepping out and purchasing a life insurance policy on a grandchild, the grandparents are giving a very valuable gift.

They are shortcutting the tendency to put off things that need to be done, but succumb to the effects of procrastination.

When the grandchild reaches adulthood, they will be very appreciative of the act that the grandparents took in purchasing their life insurance policy.

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A Good Investment

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An interesting fact is that in the long run, a life insurance policy on a child is a very good investment.

First of all, there is the safety that is provided by the strength of the insurance company. There have been only a few life insurance companies who have gone broke over the past 200 years, and they are all very strong financially.

Look at the Numbers

If a whole life policy is purchased when a child is young and kept until the child reaches adulthood, the premiums are still at the original low rate.

The child, who is now an adult can take over the payments that are at an exceptionally low rate.

If a comparison of premiums versus cash value growth on a year-by-year basis is made, it will be found that the annual increase in total cash value will be more than the annual premium.

This is even more pronounced when the whole life policy is a participating policy that pays dividends.

An illustration of this principle would perhaps have annual premiums of $250 on a $25,000 whole life policy with a corresponding cash value increase of $400 of cash value in that year.

And the situation gets better and better each year nearly automatically. No one would want to run away from an investment like that.

In Conclusion

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Grandparents can do their grandchildren a great favor by purchasing life insurance for them at an early age. The circumstances may be that the parents cannot do that, or that the grandparents just want to do their grandchildren a favor.

There is nothing that would prevent this from occurring, except that there are limits of coverage that the life insurance companies allow.

Over time the life insurance cash values grow, guarantees can be placed on future purchases, and the whole affair is very positive in the long run.

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