Five Things Grandparents Should Know About Whole Life Insurance For Their Grandkids

As grandparents, we want to do whatever we can to ensure the well-being and financial security of our beloved grandchildren. Life insurance (either whole life or universal life - whichever fits best) can serve as a lasting legacy. The access to capital provided by this gift will open doors and opportunities they never would have had without a little bit of help.

Perhaps a down-payment on their first home, or paying off high interest debt - this may be all the help they need to stay afloat and eventually achieve their dreams and aspirations.

By starting the policy at a young age, grandparents can provide a sense of financial security that will be appreciated for generations to come. Its lifelong protection, cash value accumulation, locked-in premiums, and lessons on financial responsibility make it an important platform to build a financial legacy.

Now...

Four things you need to know:

1. Lifelong Protection

Unlike term insurance, which provides coverage for a specific period (i.e. a 20 or 30yr "term"), permanent life insurance is designed to last for their entire lifetime. By investing in a life insurance policy for grandchildren at a young age, you ensure - even if they have health issues down the road, they will always have life insurance.

Procrastination...

A young family keeps putting off life insurance, never having the time or the budget to get a policy. Until it's too late, and they reach an age where it becomes unaffordable, or they have a medical issue which makes them uninsurable.

Maybe that's your story too. You can end that generational cycle with a permanent insurance policy today, and your grandchild will always have life insurance, no matter what.

2. Financial Responsibility and Legacy

Life insurance is much more than just a financial safety net; it gives your grandchild a level up in financial literacy, and being "money savvy" will be a tremendous advantage as they go through life.

Wealthy families not only use well-structured life insurance to pass huge amounts of wealth to their children - they pass the knowledge to the next generation. Now your family has this knowledge, so even if its only on a small scale, you will use that same strategy to create generational wealth. Then teach your children to grow it much bigger in the future.

Also, life insurance is a powerful tool for teaching financial responsibility. Help them think decades ahead, and instill the importance of saving today to reach long-term goals in the future. Explain the importance of protecting their future by being safe with their investments. This financial knowledge will give them more opportunity in the future - whatever the future holds for them.

3. The Design of the Policy Makes a Big Difference

The myth is true. By our reckoning, we estimate that 80% of whole life policies are not designed in your best interests. Not to paint all insurance agents with a broad brush, but very few specialize only in permanent life products - most make their money from other things. In other words, policy selection and design is not their focus.

And I don't like it, but I know it's true - some insurance agents out there know exactly how these policies work, and design a bare bones policy with the highest commission. That should never happen.

Permanent insurance policies are beautiful in their simplicity and power, but it requires a specialized level of knowledge - different policy types, nuanced design options, and specialized riders. You need an expert.

4. Compounding Creates Wealth

The world being what it is, we know our grandchildren's lives are not going to be easy, and any help we can give them is going to come in handy.

Because of the way compounding works inside a life insurance policy, even a small amount invested today begins to generate dividends, and those dividends are re-invested and create dividends of their own. Very small to begin with - hardly noticeable, but every year there's more dividends they get a bit bigger. And over the course of 20, 30, 40 years - the compounding of dividends on dividends on dividends - begins to explode, and keeps getting bigger. Your grandchildren could live 80 and 90 years - until the numbers seem astronomical - compared to the small amount you put in decades ago.

Permanent life insurance is the best kept secret in the world.

Albert Einstein
"Compound interest is the eighth wonder of the world.
He who understands it, earns it; he who doesn't, pays it."

Your grandchildren will be on the right side of the equation.

5. Supplement Your Grandchild's Social Security.

Clearly, social security as we understand it today will not be in place for your grandchildren 50 and 60 years from now. The cash value that compounds and accumulates will help with that retirement, and your grandchild can withdraw that money - tax free.

People think that the cash value is hard to access in a life insurance policy, but the opposite it true. You can borrow the cash value at any time, or set up lifetime income withdrawals - and it's all tax-free - as long as the policy is properly structured per IRS 7702.

This money could make a huge difference in your grandchild's future.

I could list 100 things about a life insurance policy, and I still would have more reasons for you to get one for your grandchild. In my opinion, every child should start out in life with a permanent insurance policy.