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This is always a question that new parents consider. With the cost of housing and education and life in general, finding a way to ensure your child’s financial security over the course their lifetime is challenging but important. To plan for this goal, don’t overlook the role that life insurance can play.

A good way to start is to consider Whole Life and Universal Life insurance. Both are permanent policies and designed to last the entire life of the insured. They won’t expire after a certain period if the premiums are paid and they both have the potential to accumulate cash value over time so your child could borrow against tax-free, for any reason they choose.

While the notion of buying life insurance for a child can have scary overtones for many, it is a proven and very effective wealth transfer strategy. It is an excellent choice of additional savings that will be a great future financial benefit for your child or grandchild.

Setting up a Whole Life or Universal Life insurance policy to fund a child’s future are straightforward. The parent or grandparent applies for the life insurance policy as its owner and names their child as the insured. The owner of the policy then names a beneficiary for the policy’s death benefit which can be the same as the owner or different. Grandparents typically select the parents of the child as the beneficiaries.

In the case of children, insurance companies typically do not require a full medical exam as they would for an adult. A simple medical questionnaire is needed unless the amounts of insurance are very high, then more questions will be asked. It is also usual for insurance companies to request the parents of the child have adequate life insurance before they will issue a policy on their child.

Once your policy is approved the owner of the policy will then begin to pay the insurance premiums. Using a Universal Life policy can shelter additional dollars within a tax-sheltered environment beyond the minimum premiums required to fund the low insurance costs for the child. So, it depends on the amount of the insurance policy and the age of the child, you can make significant additional contributions that can be directed to the policy. These can then be invested in a variety of different investment funds that will grow over the life of the policy all within a tax-sheltered environment.

Although just a baby, your child will grow up very quickly and accumulating the cash value of a universal life insurance policy now will be a huge advantage later in your child’s life when he or she is considering major financial events such as:

  • Paying for educational costs
  • Buying their first car or home
  • Helping them start a business on their own
  • Travelling the world!

So, is there a less expensive way to insure your child. You can choose Term Life Insurance? However, there is a difference between Term Life Insurance and Whole Life or Universal Life insurance. Both Whole and Universal Life are more expensive than Term Life insurance as it only covers the beneficiary for a specific term the major difference is Term Life does not offer any cash value.

From a savings perspective, time is the best advantage your child has. The sooner your child is covered by a Whole or Universal Life insurance policy, the longer the cash value component will grow until they’re ready to use it. There’s not time like the present to get started on the future of your child.

To learn more about which type of life insurance is best, contact your professional life insurance agent for more details.