Successfully navigating life requires being able to respond quickly to changing circumstances. With so many of life’s circumstances out of your control, life insurance is an important tool you can use to help maintain your financial health in the face of unexpected circumstances.
When an unexpected tragedy leaves a family without the support of a main income earner, life insurance can kick in. Depending on the face amount of life insurance purchased, it’s often used to cover funeral costs, living expenses and college education. It can also be helpful in paying off a mortgage and protecting retirement plans.
If you’re thinking about giving the gift of life insurance to a friend or family member, here are some things to consider to help guide your decision-making process.
Think about who you’re buying it for
Giving life insurance to children or grandchildren is ideal. Many times, parents are unable to afford life insurance for children, making it a wise gift. When individuals — and especially children — are young and in good health, life insurance premiums can cost significantly less. This affordable gift, therefore, makes perfect sense.
As long as the gift-giver, parent or guardian — and later, the child — keeps up with the premiums, the life insurance coverage can cost pennies on the dollar.
Select the right type of life insurance
It’s easy to become overwhelmed when you begin searching for life insurance coverage, as there are a variety of coverage types. Assistant vice president of product development for Colonial Life Pam Jenkins recommends “a policy that includes a cash value feature, such as whole life or universal life. It gives the most flexibility for the future and the opportunity to establish a foundation of life insurance that can last a lifetime.” If you find all the options too hard to decipher, consider reaching out to a life insurance agent who can help you find the most suitable coverage for your intended recipient.
Purchase an appropriate amount of coverage
Calculating the amount of life insurance to give requires considering what your intended recipient is most likely to need it for. For a child or grandchild, a permanent policy with a smaller face amount that provides cash value is generally sufficient. If the recipient is older, consider these additional factors:
- Funeral expenses. The average funeral costs up to $10,000.
- Medical expenses, in the event the recipient faces an illness or accident.
- Income protection. Is the individual close to retirement? How long will the family need income replacement?
- After-tax income to help survivors with living expenses, child care, education, and other expenses.
- One-time expenses, such as a new car, wedding or home improvements.
- Retirement investment availability. Establish your goals for the life insurance first, and then purchase appropriate coverage.
Know when life insurance doesn’t make sense as a gift
Certain factors dictate whether coverage is necessary, and indeed valuable. These include the health of the individual, age and whether tobacco is used. These components will help you figure out if life insurance makes financial sense, or if the money is perhaps better spent elsewhere.
The gift of life insurance is one that will keep on giving over the years. It may not have as big of a wow factor as an iPad on your grandkids, but it’s a valuable asset.
By providing financial security over the life of the beneficiary, life insurance is an important and meaningful way to say, “I love you.”