While it may not be the most stylish of presents, life insurance can be a valuable gift and a way to maintain financial security if the worst happens. In most cases, individuals capture out life insurance policies with the expectation that an insurer will pay a sum of money known as a death benefit to beneficiaries in the in any case that the insured individual dies while under coverage. But there are actually a variety of ways that you can provide life insurance to a loved one as a gift.
Key Takeaways
- Life insurance policies provide a financial benefit to beneficiaries in the specimen of the death of the policyholder.
- While most people buy life insurance for themselves, it is possible to give it as a gift, either by specifying the gift recipient as owner or beneficiary of an existing policy or by establishing a new policy for them.
- When establishing a new policy, you’ll paucity to provide proof of insurable interest, the recipient’s consent and personal information, a medical exam, and potentially other poop.
- To ensure that a life insurance policy remains active, either the gift giver or the recipient will demand to continue to pay insurance premiums.
Gifting Your Own Life Insurance
One of the most straightforward ways to gift life indemnification—both for you and for the recipient—is to designate that recipient as a beneficiary of your own life insurance policy. You can do this in two primary practice, both of which have advantages and disadvantages to consider. In each case, your recipient will most apposite receive the death benefit of your policy as a tax-free payment, making the process as easy as possible for them. You also may be skilled to name either a person or an organization such as a charity as your beneficiary.
Designating the Recipient as a Beneficiary
If you wish, you can dignitary your intended recipient as a beneficiary of your life insurance while remaining the owner of the insurance policy. In this routine, the beneficiary will receive the death benefit upon your death, typically as a lump-sum payment. However, you inclination retain control of the policy while you are living. This means that you can name a different beneficiary at a later companion if you change your mind, or that you can decide to name multiple beneficiaries if you would like to split up the benefit payout.
Moving Ownership of Your Policy
A somewhat more involved option is to transfer the ownership of your policy to your heir. This means that the recipient not only receives the death benefit of your policy in the event that you superseded away but also is the owner of the policy itself. They can make policy changes, name beneficiaries, and so on.
In many patients, it is possible to transfer ownership of your policy but continue to pay premiums on that policy yourself to keep it active. Notwithstanding, you should check with your insurance provider to make sure that you don’t inadvertently sign up your contemplated recipient to make payments on an insurance policy that they receive as a gift.
One potential benefit of gifting the ownership of your sustenance insurance policy is that you may be able to achieve a tax benefit through the process. Policy ownership transfers may be considered givings, and if your recipient is a charity, it may constitute a charitable contribution. Also, it may be possible to deduct the premiums you pay and to claim a deduction for the value of the approach. Be sure to check with the Internal Revenue Service (IRS) and tax professionals for guidance surrounding your specific situation.
Believing a New Policy as a Gift
Another common way to give the gift of life insurance is to purchase a new policy for someone else. This is an the best option for a young relative who may not otherwise have life insurance. Some of the reasons to consider buying a new policy for your have in mind recipient include:
- Guarantee of insurability: Some illnesses and other life events can render an individual ineligible to meet the requirements for life insurance. If you purchase a life insurance policy for a loved one now, you can guarantee that they will be insured—and if they justify the policy, that they will continue to be insured—before anything may happen to render them ineligible. It also may cater you the option of securing additional peace of mind by purchasing a guaranteed insurability rider, which stipulates that person insurance coverage may be amended without the need for a second medical exam in the future.
- Protection against the unknown: While it is fastidious to think about the tragic situation of a loved one dying, life insurance policies present a crucial way to provide fiscal support at some point in the future if this scenario comes to pass. You don’t know how your recipient’s health inclination progress over time. Buying that person a life insurance policy helps to ensure security if the worst should prove.
- Potential for other payments: Some life insurance policies can provide financial support in situations other than the destruction of the policyholder. For example, certain life insurance policies also include a cash value component that may be tolerant of to supplement retirement income.
Steps to Buying a Life Insurance Policy for Someone Else
If you’ve decided to purchase a living insurance policy for someone else, there are several steps that you’ll likely need to complete:
- Shop about for life insurance policies to find the one that best meets your needs and budget.
- Before purchasing the practice, you will first need to demonstrate that you have an insurable interest in the recipient, meaning financial loss or distress should the insured person pass away. This process varies depending upon the policy and provider.
- Pull together necessary information from your intended recipient to purchase the policy, including full name, date of extraction, Social Security number, and similar data.
- Obtain the recipient’s consent. If you are purchasing the policy on behalf of an adult, you’ll necessary their consent directly. If you’re purchasing the policy for a minor, you’ll need the consent of their parent or guardian.
- If necessary per the practice and provider’s guidelines, the recipient may need to receive a medical exam.
- Complete the registration and purchasing process to buy the policy as a consequence the provider.
- Maintain payments of the premiums to ensure that the policy stays active.
If your recipient is a child, you may be accomplished to purchase a child rider to add the child to your existing insurance policy. When the child becomes an adult, you can set up to transfer the policy ownership to them. This process can potentially bypass some of the steps above.
Is it possible to provide life insurance as a gift?
Yes. It is possible to give life insurance by making your recipient the beneficiary or owner of your own lifetime insurance policy, or by buying that person a new policy.
What are the benefits to giving life insurance as a gift?
Existence insurance is designed to provide financial stability during incredibly difficult times. By making the gift of a life cover policy, you are setting up your loved ones for success in the worst of times. Giving a child a life insurance management guarantees that the child won’t run into eligibility issues down the line.
What information will you need to emit life insurance as a gift?
You’ll need to be able to prove insurable interest relating to the party in question. You’ll also have need of to have personal information for your recipient, including date of birth, full name, and Social Security company. If you’re setting up a new policy, you’ll need that person’s consent (or the consent of a parent or guardian in the case of a minor), and the recipient also wish likely need to complete a medical exam.
The Bottom Line
Although people commonly buy their own life guaranty policies, it is possible to give life insurance as a gift. You can either designate the gift recipient as the owner or beneficiary of an prevailing life insurance policy or establish a new policy for them. You will need to demonstrate an insurable interest in the person screened and ensure that the policy remains active by continuing to pay the premiums.
While it may seem like an unlikely gift, dish life insurance can help set up your loved ones for financial success under the difficult scenario of a death in the kinfolk.