FINANCIALLY
Speaking
The Gift
Of A
Lifetime
A
melia, our youngest granddaughter,
recently celebrated her first birthday. On
occasions like this, many grandparents buy toys,
clothing, books or games, but we took a different
approach, just as we did for Amelia’s older sister
and cousins. Instead of purchasing a toy that will
be used up and forgotten within a short time,
we purchased a gift that is designed to be useful
throughout Amelia’s entire lifetime – permanent
life insurance. While this may not seem as ‘fun’
or ‘exciting’ as the many other gifts Amelia might
receive at her birthday party, my wife and I
wanted to take advantage of an opportunity to
provide a greater blessing in the future.
You see, the best time to buy life insurance
is when you are young and healthy, as the cost
of insurance will never be lower. Unfortunately,
many young adults don’t yet have enough money
to buy insurance. When someone is graduating
from high school or college, or getting married,
or as in this case, celebrating her first birthday,
there is a great opportunity for a parent or grand-
parent to purchase permanent life insurance for
them.
Here are some of the important benefits of
giving the gift of life insurance to a child:
1. It can lock in their insurability, hedging
against unforeseen health issues that might pre-
vent them from getting life insurance later in life.
2. It starts building cash value early on, and
setting up a policy early on gives the money more
time to compound over the life of the beneficiary.
This larger cash value can be leveraged when it
comes time for your child or grandchild to go to
college or buy that first home, or eventually, even
for income in retirement.
3. It locks in lower premiums. It’s much
cheaper to purchase life insurance when you’re
young and healthy. Covering those first few years
of your child’s or grandchild’s insurance premium
can help them take advantage of lower premiums.
Jeffrey M. Orth is a
Chartered Financial
Consultant, a Certified
Advisor in Senior Living,
and an Investment Advisor
Representative, with over
15 years of experience as
a business and personal
planning, insurance,
and wealth management
specialist. Jeff is available
for group lectures and
private consultations. Visit
ifitfinancial.com or call
408.842.2716.
1380257RM-Dec17
50
4. It instills a sense of responsibility. This is
why life insurance makes a tremendous wedding
present. Marriage is the gateway to a world of
larger responsibilities … a mortgage, a spouse
and children. Yet studies have shown that up to
23 percent of families with children under the age
of 18 have no life insurance. And many of those
who do have life insurance often find they don’t
have enough.
5. It provides a death benefit. In an era when
students are graduating from college with an
average of $33,000 of student loan debt, not to
mention credit card debt and rental agreements
on apartments, many young people have a
surprisingly large amount of final expenses.
Of course, buying life insurance is a big
decision, and there are some things to consider:
How much insurance to buy. This depends
largely on the circumstances around the gift. For
most parents or grandparents, a gift of a small
amount of insurance, perhaps $100,000 or so
is a good place to start. This provides a good
foundation of immediate protection, but it leaves
room for additional insurance as income, assets
and responsibilities grow.
LONG TERM AFFORDABILITY. Unless the
premiums are going to be gifted in perpetuity, at
some point the child or grandchild is going to take
over the responsibility of paying the premium,
and they need to have the means to assume that
responsibility.
WHO OWNS THE LIFE INSURANCE?
Ultimately, the child or grandchild should own the
policy, but many times the policy starts off being
owned by the person who gives it, and is later
transferred to the insured, when they are ready
and able to assume the financial responsibility.
THE TAX IMPLICATIONS OF THE GIFT.
It is considered a gift when ownership of a life
insurance policy is transferred to the insured. If the
policy is owned by the insured but the premium is
paid by someone else, it is also considered a gift.
The amount of the gift depends upon the value
of the policy when it is transferred. Gift taxes can
be avoided if the amount is under the annual gift
limit of $1,400 per person ($2,800 for a couple),
and does not exceed an individual person’s ‘life-
time gifting’ amount (currently $5,430,000). It’s a
good idea to consult with your tax advisor before
finalizing your decision in this area.
GIVING LIFE INSURANCE AS A GIFT is a
time-honored tradition that many families have
carried on for generations. Used as the center of a
sound financial plan, it can still be there, helping
your loved ones throughout every stage of their
lives – regardless of changes in their health or
occupation. The next time you are thinking about
what gift to get your loved ones, perhaps it’s time
to start a new tradition in your family.
All guarantees are based on the claims paying
ability of the issuer. Any reference to the taxation
of life insurance products in this material is
based on Penn Mutual’s understanding of
current tax laws. You should consult a qualified
tax advisor regarding your personal situation.
Accessing cash values may result in surrender
fees and charges may require additional premium
payments to maintain coverage and will reduce
the death benefit and policy values. For more
information on coverage, please write or call
your financial professional.
Registered Representative of, and Securities and Investment Advisory Services offered through Hornor,
Townsend & Kent, Inc. (HTK). Registered Investment Advisor. Member FINRA/SIPC, 16845 Von Karman
Ave, Ste. 225 Irvine, CA 92606 (949)754-1700. IFIT is independent of HTK. CA Lic #0C49291
GILROY • MORGAN HILL • SAN MARTIN
JULY / AUGUST 2016
gmhtoday.com