Remember when it was easy to buy presents for your family? You stopped at the mall and picked up toys and electronics. But, as kids or grand-kids get older, they may suddenly become the “problem people” on your list. Giving a gift of life insurance may be a solution. While life insurance may be the last thing on a child’s or grandchild’s wish list, the truth is that buying a policy when someone is young and in good health can be a smart move. Premium rates are relatively low and, with some policies, may be guaranteed for the life of the individual. And buying a policy early on can ensure coverage for life, no matter what the child’s future medical condition or occupation turns out to be. Term or Cash Value? When you’re buying a policy for a loved one, you have several options. Term life insurance is relatively inexpensive and provides a death benefit. Cash value life insurance provides a death benefit but also offers an investment component. Although premiums are more expensive, the policy builds cash value over time. Your child may be able to borrow against that accumulated value in the future.
Generally, the annual premiums you pay on a gift of life insurance will not be considered taxable gifts if they remain below the gift-tax annual exclusion amount of $13,000 per recipient — $26,000 if your spouse joins in the gift (for 2010). To avoid estate-tax issues, be sure you don’t retain any “incidents of ownership” in the policy, such as the power to change the beneficiary. Giving life insurance as a holiday, graduation, or wedding gift can bring lasting benefits. Your financial professional can tell you more.