As a Grandparent you may be able to play an instrumental role in providing financial gifts that perhaps may be out of the reach to your Grandkids’ parents. One often overlooked way for Grandparents to play an instrumental role in providing a financial gift for their grandchildren that will literally last them a lifetime is by buying them life insurance. You are giving them the gift of freedom and choice at a young age, and you own (and control) the policy and the cash in it until you decide to transfer ownership to your grandchild.
My Dad loves being a Grandpa. I don’t think he is alone. There is a special bond between Grandparents and grandchildren. Being a Grandparent is one of the most rewarding roles in life he tells me. He loves being a Grandpa and it shows in his eyes when his grandchildren are around him. I am sure many of you know the feeling.
There is a pool in the home where my father lives and he never uses it. He didn’t even know how to get to it. It is in the basement near the fitness centre which, for my father, would be an equally useless mapping sequence. He could not care any less about the pool or the gym on the bottom floor of his sprawling residence. That changed when my nephews found out that there was a pool downstairs.
Before Covid changed the world, my little sister would often bring my two nephews to visit my dad on Sundays. As you can imagine, the kids are happy to see their Grandpa, but once the hugs and handshakes (again, pre-covid) are done and they have had their treat, there isn’t a whole lot for 9 and 11 year-old boys to do in their Grandpa’s room. There is a TV, but these are active farm boys and sitting inside watching tv on a sunny, precious weekend day-off is not exactly what they look forward to. Until they found out about the pool. And Sundays suddenly changed for the boys, and their Grandpa.
The following Sunday, my sister made sure the boys had their swimming trunks and towels. They left my father’s room and set out for the pool. It was an adventure but they found it and that was it. They boys played and laughed and my dad and my sister sat up at one of the patio tables set out and watched and chatted as the boys splashed and played. The following week they arrived with pool noodles and my dad had popsicles in his mini fridge and it felt more like a day at the beach. A new Sunday routine was born.
Covid has changed the Sundays at the beach for my dad and my nephews, but with vaccinations and the hope of a re-opening of some kind on the horizon, they can hopefully all look forward to doing it again soon.
There is something special about the bond between a grandparent and their grandchild. I myself look back with tremendous fondness at my own relationships with my grandparents. They were always so wise.
Although it isn’t clear to me why this bond is so powerful it may have something to do with knowing that your legacy will continue into the future. Or maybe it is simpler than that. Maybe it has something to do with the instant personal closeness and devotion you feel to your grandchild that causes an immediate love affair.
Whatever the cause, having grandchildren evokes pride in my father and he makes an extra special effort to be a part of their lives. I know that the feeling is mutual, especially when your grandpa has such a cool indoor pool where he lives.
Back to the main topic. It is one the most rewarding roles in life that of being a Grandparent. Grandparents are often eager to shower their grandchildren with gifts, toys, clothes and money. Like many of you, as a Grandparent you may also be able to play an instrumental role in providing financial gifts that perhaps may be out of the reach to your Grandkids’ parents.
One often overlooked way for Grandparents to play an instrumental role in providing a financial gift for their grandchildren that will literally last them a lifetime is by buying them life insurance. It is also something that perhaps the child’s parents who are juggling the costs of maintaining a household and raising your grandkids, paying for ballet and hockey (and swimming) lessons, might not be able to afford. I’m sure you can remember the feeling. They may not be able to afford it, but perhaps you can. Buying life insurance for your grandchild might end up being one of the most important gifts that you could ever give them.
You are giving them the gift of freedom and choice at a young age, and you own (and control) the policy and the cash in it until you decide to transfer ownership to your grandchild. Depending on the policy, they will never have to put another penny into the policy that they will eventually own and they will have insurance for life. They can use the money for their education or for a down payment on a first home or leave it in the policy to grow and grow. year after year. If they decide the money should be spent on a flashy new sports car (what I would have most certainly chosen) they will have to go through you because you control the purse strings and perhaps you can bring a little grandparental guidance and persuasion to bear.
It is a great way to help your grandchildren if you want to help them get an early start on the way to a financially secure future. My niece and my nephews all have Participating Life Insurance Policies. It is a great solution because it provides access to cash – cash values accumulate in the policy over time – and unlike an RESP, your grandchild can use the cash value for something other than post secondary education. It is also very affordable to you and provides your grandchild with coverage for life.
Here’s how it works:
- Grandparents purchase a participating whole life insurance policy that insures their grandchild. The Grandparents are the owners and therefore are in control of the policy
- Grandparents transfer ownership to the grandchild tax-free at age of majority (or whenever you choose).
- Grandchild becomes the owner of the policy and continues to be the life insured under the policy.
In addition to the cash value that builds up year after year, they will have life insurance that grows in value with them for their entire life and depending on the policy, they will never have to pay a penny into it themselves because you will have paid the policy up entirely. And because life insurance premiums are based on age and health of the insured, your grandchildren will be entitled to the lowest premiums. It is truly a legacy gift from you to your grandchild.
Here are a few benefits:
- The transfer of the policy ownership from Grandparent to grandchild is tax free.
- Any cash value that is withdrawn by your grandchild, if taxable, is taxed in the hands of your grandchild.
- Because premiums are based on the age of the insured (your grandchild), a participating whole life insurance policy provides a low cost, permanent life insurance for your grandchild for their whole life. A true legacy.
- Using a limited 8 pay, 10 pay, or 20 pay premium payment option allows the coverage to be fully paid in just 8, 10 or 20 years.
- It is a great solution for intergenerational wealth transfer
- It is a great solution if you are a grandparent with surplus cash that you wish to efficiently transfer to your next generations.
- There is even a concept that can be used in combination with an annuity that is set up to pay the premiums for your grandchild’s policy so it happens automatically.
To put it simply, Grandparents purchasing a participating whole life insurance policy for their grandchildren and transferring ownership of the policy to them after they reach the age of majority is an easy, tax efficient way to transfer wealth to future generations.
Let’s Look at an example:
John and Patti would like to give their new granddaughter the gift of a new participating whole life insurance policy. They Choose a 20 pay so they can pay the entire policy off in 20 years, then nothing ever again. It gives their Granddaughter Michelle permanent life insurance protection for the rest of her life and the ability to access the cash values that accumulate in the policy.
- The Life insured is a female, age 0
- Initial coverage amount is $50,000
- The annual premium is about $650 per year for 20 years, then the policy is fully paid up
- The Guaranteed cash values begin to accumulate at the end of the first policy year.
If Michelle needs cash in the future, for post-secondary education, buying her first home, or whatever she chooses, she will have the option of accessing the accumulated cash values. She will also have permanent life insurance and the coverage grows in value.
If you are able, it is a wonderful gift that will last a lifetime. You’ve worked hard to earn what you’ve earned. Make sure your loved ones are the beneficiaries and not the tax man. It is a great way to help extend your financial legacy.
It may not be as exciting as an indoor swimming pool, but I can assure you that your grandchildren will be happy that you were able to put in place a gift that will give them a financial foothold as they start their adult lives and it will grow with them for their entire lifetime. And that is pretty exciting.
THIS ARTICLE IS PROVIDED AS A GENERAL SOURCE OF INFORMATION ONLY AND SHOULD NOT BE CONSIDERED TO BE PERSONAL INVESTMENT OR LEGAL ADVICE. READERS SHOULD CONSULT WITH THEIR FINANCIAL OR LEGAL ADVISOR TO ENSURE IT IS SUITABLE FOR THEIR CIRCUMSTANCES.