Buying life insurance for a child provides more than a financial security net to help pay funeral expenses if the unthinkable happens to that child. Most juvenile life insurance plans offer a non-cancellation clause as long as the policy is kept current. You may also be able to borrow against the cash value of the plan. As a grandparent, you can give these gifts to your grandchild by taking out a life insurance policy on him or her.
Since they are caregivers, grandparents usually have the right to buy life insurance for their grandchildren.
Rules for Grandparents
Grandparents are often considered extended caregivers of children, so they usually have the right to purchase life insurance in the grandchild's name. These policies are typically small, such as $10,000, and designed only to cover funeral expenses if the child dies as a minor.
Some states require the child's parents to sign off on the policy, but most states allow grandparents to purchase the life insurance without the parents' permission or knowledge. Typically, the grandparents need basic information on the grandchild, such as his address and Social Security number.
Benefit of Lifelong Insurance
One of the benefits of buying a juvenile life insurance policy is that you can give your grandchild the ability to be insured as an adult. Most juvenile policies guarantee adult coverage as long as the premium is paid, regardless of your grandchild's health. If your grandchild develops a chronic or terminal disease, he or she is unlikely to be able to buy life insurance at that point. However, if the grandchild continues to pay for the insurance you purchased for him or her as a child, coverage won't be lost.
Some policies double when your grandchild turns 18 with no premium increase, while others offer a higher amount for an additional fee. Some let you pay a lump sum when your grandchild is a minor, meaning you pay no further premiums until he or she becomes an adult. At that time, your grandchild can opt to begin paying a monthly premium for the guaranteed coverage.
Policy Cash Value
Many juvenile life insurance plans build cash value over time, meaning you – or your grandchild, when he's an adult – can borrow or withdraw from the cash value. You can use this money to help him prepare for his future, such as paying for his education or perhaps as part of a down payment on his first house.
Beneficiaries and Ownership
You don't have to name yourself as the beneficiary of your grandchild's life insurance policy. Many grandparents name the child's parents instead, as they are the ones who would need the money to pay for expenses if something happened to the child. You can also name another family member, such as a sibling.
However, you still own the policy while your grandchild is a minor, regardless of who you name as a beneficiary. When he turns 21, you must either turn ownership over to him or lose the insurance. Most policies don't let grandparents continue to pay once the child becomes an adult, although there are exceptions. Also, if you die before your grandchild turns 21, his parents have the option to continue the insurance in their names instead of yours in most circumstances.