A Gift of a Lifetime 

With the holiday season right around the corner, many people are scrambling to find gifts that everyone will love. But, instead of endlessly searching for the perfect gift this year, maybe giving a gift that will last someone's lifetime would save you some time and hassle and give your loved one something that he/she can look forward to in their future. Even though it doesn't seem like the typical holiday gift, a Life Insurance policy will make more of an impact than any toy, clothing or material item ever could. 

 

WHAT IS LIFE INSURANCE? 

 Insurance that pays out a sum of money either on the death of the insured person or after a set period of time. 

1) TERM LIFE INSURANCE - purchased for death benefit only, builds zero cash value. Similar
to how you pay for or rent an apartment
           2) PERMANENT LIFE INSURANCE- builds up cash value overtime, which is similar to how you
would build equity in a home. 

 

4 COMPONENTS: Insured, Owner, Beneficiary and Payer 

Grandparent, parent/guardian or Aunt/Uncle chooses the insured individual, is the owner of the policy, the
beneficiary would be the insured's guardians and the payer is also the owner of the policy. 

 

WHY IS LIFE INSURANCE IMPORTANT? 

It is important to have, because if the loss of life were to happen, it helps compensate for the inevitable financial costs that come with this. Furthermore, it also helps  those who were dependent upon you, such as a child, life partner, spouse, etc., cover the costs of final expenses, outstanding debts, mortgages, educational expenses and lost income. Ultimately, it can lessen the financial burden of an unexpected death of a family member. 

On the other hand, it can be very important and helpful when policies are issued to individuals at a young age. When an allotted amount of money is put into someone's policy for an extended period of time, the amount accrues and provides somewhat of a "nest egg" for young adults to use for their future education bills, first house, wedding, etc. A little bit spent a month over a long period of time will be incredibly beneficial in the long run. Therefore, this is why a Life Insurance Policy the best gift you could give at Christmas, a "gift of a lifetime." 

 

To read more about the importance of life insurance, please find this article written in Forbes Magazine, here

 

SCENARIO EXAMPLE

Insured = Child
Owner = Grandparent, parent/guardian, aunt/uncle
Beneficiary = Insured's guardians
Payer = the same as grandparent, parent/guardian, aunt/uncle

  • A permanent life insurance policy is opened up on a 1 year-old child (the insured). Since the child is so young, and is in great health with no ailments, the premium payments will be low and maintained for the rest of their life (i.e. your payment will never go up). You (the owner of the policy) pay $100/month until the child is 24, or has just finished college and entered the workforce. At this time, the child will be able to take over the policy, now becoming the new owner and make his/her own payments of $100/month. 
    • By age 30, the policy and owner will have accrued $72,304 
    • By age 50, the policy and owner will have accrued $314,212
    • By age 65 (retirement) the policy and owner will have accrued $861,96
      • Note: this money can then be converted into a stream of payments (like an annuity) for the rest of your life for a yearly amount of $83,521. 

Once the child is at a certain age where you deem them responsible to handle these funds and making these payments, you can then transfer the account over to them, where they will have access to this money to use for their future. 

On a lighter note, if the insured individual is into shopping sprees, or fast cars, then this is an excellent opportunity for you to control this account and maintain the ownership until he/she is ready to have the amount transferred to them. 

 

**It is also important to note that the proceeds of a death benefit are tax free. Many people don't know about this.**

 

I hope this makes your Christmas shopping a bit easier both this year and for years to come! A Merry Christmas & Happy Holidays from everyone here at Croft Enterprises. If you have any questions about a life insurance policy or how to open one up on a loved one, be sure to reach out at paul@croftenterprisesllc.com. 

Cheers!