Life Insurance Policy: The Best Gift For Future Generations.

Q: I'd like to set aside some money for my grandchildren, just in case something happens to me. Do you have any ideas?

There are many ways to set aside funds for future generations. But the situation you describe cries out to me for one very specific strategy. You are already benefiting this family in many ways through your financial contribution, but because you are older, the risk of you dying and not being around to help is higher than the risk of either mom or dad dying. But I think the greater danger to this young family is if either the mom or dad, or — God forbid — both of them were to die pre-maturely. That would be a disaster. It's a terrible thought that a young person, and especially a new parent, could die before their time; but — very unfortunately — it does happen.

I can just imagine in that dreadful situation that you would want to participate even more than you do now. Given that you are still working and have a life outside of being a supportive grandparent, it would be very difficult to replace the time, attention, love and care that a full-time parent provides.

The easiest and most cost-effective way to plan for this unlikely but possible situation is with the use of a life insurance policy on your child's life. Of course, money does not replace a parent, but it sure would assist in that potentially disastrous circumstance.

I'm guessing that the new parents have not implemented this strategy, or maybe they don't feel they have the extra financial resources to do so. If you wish to help out, I encourage you to contemplate funding life insurance policies for the two of them. You'll need their cooperation to make this happen, but I can't imagine that they would object.

Let's assume that they are both 22 years of age, in good health and non-smokers. To purchase a $500,000 life insurance policy on your son, with a 20-year term, you'd pay approximately $34 per month. A similar $500,000 policy on your grandson's mother is around $24 per month. For a total cost of about $58 each month, you could cover the less-than-likely financial risk that a death could occur in that family. (The cost would increase if they use tobacco, nicotine or cannabis products or are in less optimal health compared to the average male and female of their age.)

The term part of this life insurance policy means the price — called a premium — stays the same for a specific period of time — called a term. I'm suggesting a 20-year term, because that gets the little one to 20 years of age, when the death of a parent might be less catastrophic to this family. Of course, it's always terrible when a parent dies; but perhaps you can see the difference to the family's entire situation if a parent dies and leaves a surviving spouse with a four-year-old rather than a surviving spouse and a 24-year-old. Neither is a pleasant situation, but the former is much more financially distressing than the latter.

If an untimely death occurs in that family, you would show up with a check for $500,000. Those funds are paid tax-free, so that whole amount is available to assist the surviving parent and their son into the future. There's no limit on what the funds could be used for, and I suspect it would sure help with housing, childcare, and other everyday living expenses. If the funds were invested prudently, they could even help provide for your grandson's post-secondary education.

The insurance policies should also be renewable. This means that after the initial 20-year term, the insurance doesn't expire but automatically renews for another 20-year term, without the requirement of any new medical information being provided. After that first 20-year timeframe, there will be a new — and higher — premium for the next 20 years, because the risk of dying has increased. It may make sense to you that there are more people who die between 42 and 62 years of age than between 22 and 42. The insurance company wants to be compensated for that additional risk, so the premium goes up with the age of the policy holder.

At renewal, the family's situation should also be re-evaluated to determine if that same $500,000 of life insurance is still appropriate. If the couple has no debts, and a death would not negatively affect the surviving spouse, then less coverage may be required, at a lower cost. On the other hand, maybe the couple has a mortgage at that point, went on to expand the family and still has a bunch of kids at home. In that case, the full amount of insurance coverage ought to be carried forward into the next 20-year term.

Assuming your child and their spouse agree to participate, they would need to complete a life insurance application and answer some medical history questions with a qualified life insurance agent. They may have to visit with a paramedical to provide some additional information, such as blood pressure and blood or urine samples. An APS (attending physician statement) will also be requested from their family doctor. The process should take about four to six weeks to be approved and implemented.

The monthly premiums would come directly from your bank account. And, in the future, if the new parents are in a better financial situation, they could take over the premium payments themselves. Two 20-year term life insurance policies with a renewable option just might be the greatest gift you could give this young family. This is just an example of how you could provide a lasting gift for your future generations, as with everything speak with a licensed agent for your custom plan, you can also apply here.

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