What Is Juvenile Life Insurance?
Juvenile life insurance is a flexible financial product that insures the life of a child. It provides cash value accumulation, tax-advantaged growth and guaranteed insurance for life.
Juvenile life insurance has the following basic features:
Cash Value Accumulation
The cash value of traditional juvenile life insurance increases by a minimum guaranteed interest rate, plus a non-guaranteed dividend declared annually by the insurance company.
In indexed juvenile life insurance policies, cash value increases are linked to equity indexes with downside protection. Some policies provide for both equity participation and a minimum growth guarantee.
Juvenile life insurance is typically funded early in a child's life, enabling the substantial cash value buildup of a policy. By maximizing the allocation of annual contributions to cash value and minimizing the portion allocated to a death benefit, the policy owner is able to leverage the tax-deferred savings of a juvenile life insurance policy.
Access to Cash Value
The cash value of a policy can be withdrawn or received as a guaranteed loan at any time, without a credit check or lender approval. A policy owner will typically receive the withdrawal or loan amount requested in less than seven days, providing an easily accessible source of liquidity. The policy owner has unrestricted access to the cash value of a juvenile life insurance policy, regardless of the age of the insured, or intended purpose of the funds. If the policy is held within a trust, funds can be requested and distributed for any purpose permitted by the trust.
Tax Advantages
Juvenile life insurance offers several important tax advantages. The interest and dividend growth of the cash value of the policy is tax-deferred. Only withdrawals that exceed cumulative premium paid are treated as income for tax purposes. A policy owner is able to borrow money from the policy up to the accumulated cash value without any tax consequences as long as the policy remains in force. If a policy is held in a trust, the trustee can make distributions for certain specified purposes (e.g., education, health, etc.), up to the cumulative premium without any tax liability.
A parent or grandparent may use the gift tax exclusion amount (currently $13,000 per donor, per year to any number of recipients) to pay the annual premium on behalf of their child or grandchild. For example, a mother and father can contribute a combined $26,000 toward each of their children's policies without incurring any gift tax liability.
The eventual death benefit is received by a beneficiary tax-free. If the policy is owned by a trust, the funds are not included in the estate of the deceased for tax purposes.
Insurability
Juvenile life insurance secures affordable lifelong insurance coverage regardless of the future health of the child or adverse family medical history.
After the insured reaches the age of 21, some insurance companies offer the opportunity to purchase up to $2,000,000 of additional coverage without a medical exam.
Juvenile life insurance is generally issued based on a current or recent medical exam. Unlike the medical exam requirement for an adult requesting insurance coverage, a juvenile life insurance policy generally requires only age, sex, height, weight and general health information provided by a doctor or insurance agent.
Lower Costs
There is a lower cost of insurance associated with insuring the life of a minor, which allows for a smaller annual premium compared to similar insurance coverage for an adult. In a permanent juvenile life insurance policy, the annual premium is guaranteed to never increase, regardless of any changes to the health of the insured.
College Savings With a Lifetime of Benefits
Juvenile life insurance is a tax-efficient, secure, growth-guaranteed college savings vehicle.
Unlike traditional college savings accounts and 529 plans, the cash value of a juvenile life insurance policy is excluded from most need-based financial aid calculations. This makes a juvenile life insurance policy a highly sought after planning tool for families and individuals who require financial aid, but may not otherwise qualify for it.
Juvenile life insurance also offers predictability and flexibility. Section 529 plans and Coverdell ESA savings accounts are subject to regulatory changes that can impact any potential tax savings. Life insurance is a stable and well-established tool for lifetime tax-advantaged savings and can be used for purposes other than college education.
After college, the young adult will have fully paid, guaranteed insurance coverage for life, and accessible cash value for future needs.
Estate Planning/Legacy
Estate planning professionals recommend juvenile life insurance for parents or grandparents who seek to maximize the tax-efficient transfer of wealth and leave a substantial legacy for future generations. Each parent or grandparent can contribute up to $13,000 annually to each of their children and grandchildren for a juvenile life insurance policy using their annual gift tax exclusion amount.
Privacy
Policy ownership may be transferred to a child any time after he or she reaches the age of majority, although the policy owner is under no obligation to do so. The policy owner can chose when the child will learn of the policy, access its cash value, or take ownership. There is no requirement to disclose the existence of the policy to the insured or any other family member.
Asset Protection
In most states, the cash value of a juvenile insurance policy enjoys broad protection from creditors and lawsuits. In a state that lacks asset protection provisions, the policy can be purchased by a trust domiciled in another state.
Flexibility
A well-structured juvenile life insurance policy will allow the parent to use the cash value of the policy to make future payments. Typically, after five years no further out-of-pocket contributions are required. Additional annual contributions will result in greater cash value accumulation.
You can always call the Baldwin Insurance Agency with your Life Insurance questions at (510) 274-9766. You can also stop by our office in the Intero Real Estate Building at 3185 Castro Valley Blvd, or visit our website at:
http://castrovalleyinsurance.net
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