Giving the gift of life insurance
Life insurance is the gift that keeps giving. Learn how to gift a life insurance policy, and all the benefits involved.
Information courtesy of USAA Life Insurance Company and USAA Life Insurance Company of New York.
You're right: Life insurance is a financial tool that can provide financial protection for your loved ones after your death. But it's more versatile than you think. Although life insurance may not be a gift you'd like from a friend on your birthday, there are cases where it has some solid gifting potential.
If you're a parent or grandparent — or if you have a cause you're passionate about — life insurance can provide lasting financial security for the people and causes you care about most.
Video Transcript: Giving the gift of life insurance
- Video duration: 2 minutes 50 seconds
- Transcript date: Aug. 23, 2023
Introduction: Elapsed time 0 minutes 0 seconds [00:00]
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Life insurance helps you provide financial protection for loved ones after your death. Although you may not want it for a birthday gift, you can use life insurance to give meaningful security to people and causes you care about most. Let's talk about three common ways to give the gift of life insurance.
Naming a beneficiary on your policy: Elapsed time 0 minutes 21 seconds [00:21]
First, you can name a beneficiary on your own policy.
A beneficiary is the person or organization who gets the death benefit of the policy when you pass away. Choosing a beneficiary makes sure the benefit goes where you want, and it's usually tax free. If you want to give to a charity, make sure you choose a policy that fits your goals best, such as permanent life insurance. Remember that whenever your life changes, you'll want to make sure your beneficiary still matches your wishes. And you can change your beneficiary anytime unless it's irrevocable.
Purchasing a policy for someone else: Elapsed time 0 minutes 55 seconds [00:55]
Second, you can buy a policy for someone you love.
People often cover a child or grandchild to protect the child's future insurability or build cash value over time.
The good news is it's usually easier to get a policy for a child because most companies don't require them to get medical exams. You can usually get a policy right away unless the child has a major health problem. If you're not the parent of the child, you'll need to make sure that the parents or guardians agree with your gift.
What type of policy to gift: Elapsed time 1 minute 26 seconds [01:26]
Your purpose for giving a policy can help you decide which type to buy. You can choose between term life insurance, which provides coverage for a specific period, and permanent life insurance, which is intended to provide coverage for life. If you want to build a cash value, permanent life insurance policies are the way to go.
It's also helpful to understand life insurance contract roles before buying a policy for someone else.
- The owner controls the decisions of the policy.
- The insured is covered by the policy.
- The beneficiary receives the benefit and can be a person or organization.
Establishing a charitable remainder trust: Elapsed time 2 minutes 3 seconds [02:03]
Third, you can establish a charitable remainder trust.
This type of trust does two things. First, it gives you or a loved one an income during your lifetime. Then after you pass, any money remaining in the trust goes to the charity you selected. It works like this.
- You transfer ownership of the policy to the trust.
- The trust gets the benefit of the policy.
- Then, the trust provides the money to the charity you chose.
Be sure to consult with a financial professional or an estate planning attorney to determine the best strategy for you.
You can learn more about life insurance options at usaa.com/life.
Description of visual information: [Copyright© 2023 USAA
This material is for informational purposes. Consider your own financial circumstances carefully before making a decision and consult with your tax, legal or estate planning professional.
Life insurance and annuities provided by USAA Life Insurance Company, San Antonio, TX and in New York by USAA Life Insurance Company of New York, Highland Falls, NY. All insurance products are subject to state availability, issue limitations and contractual terms and conditions. Each company has sole financial responsibility for its own products.
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End Elapsed time 2 minutes 50 seconds [02:50]
Let's look at three common strategies for gifting a life insurance policy.
1. You can gift the death benefit.
When it comes to life insurance, a beneficiary is the person or organization who receives the death benefit when the insured passes away. Naming a beneficiary is a one of the most important steps in the life insurance process, and it allows the death benefit to go directly to the intended recipient without going through probate.
Life insurance proceeds are usually tax free. If you think about it, the dollar amounts can be quite substantial — in some cases, hundreds or even millions of dollars. What better way to leave a legacy to your loved ones?
Of course, naming a beneficiary requires you to have life insurance. But even if you don't, buying life insurance is a straightforward process. In the application process, you'll name your beneficiary. Unless it's irrevocable, you can change it anytime.
You can also gift a policy to charity to ensure that your gift will support the organization's mission after you're gone. This is easy and just involves naming a charity or nonprofit organization as the beneficiary of your life insurance policy.
If this is your intention, be sure to research the types of life insurance well-suited for a charitable contribution. Permanent life insurance is usually a good fit if you want to leave a lasting legacy.
Regularly review your beneficiary designations to ensure they reflect your current wishes. Life changes like marriage, divorce or the birth of a child may require you to update your designations.
2. You can buy a policy for someone else.
You can also gift life insurance by purchasing a policy for a loved one. As long as they're aware of the policy and agree to it, this is a meaningful way to provide financial security for a child, grandchild or other family member.
It helps to understand life insurance contract roles before buying a policy for someone else.
- The owner controls the decisions of the policy.
- The insured is covered by the policy.
- The beneficiary receives the death benefit. The beneficiary can be a person or entity.
Parents or grandparents own policies that cover their children or grandchildren for a variety of reasons. Most often, they want to protect the children's future insurability, teach financial literacy or build cash value over time.
In general, it's easier to get life insurance for a child than it is to buy life insurance as an adult. That's because most life insurance companies don't require a medical exam for children. Generally, they'll issue the policy right away unless the child has a major health concern.
For more information, read about four lesser-known benefits of life insurance for children.
When purchasing a policy for a loved one, you can choose between term life insurance, which provides coverage for a specific period, and permanent life insurance, which is intended to provide coverage for life. If you want to build a cash value, permanent life insurance policies are the way to go.
3. You can establish a charitable remainder trust.
A charitable remainder trust is a type of trust that works double duty. First, it allows you or a loved one to receive income from the trust during your lifetime. And after you die, the remaining funds go to a designated charity.
When you fund a charitable remainder trust with a life insurance policy, you transfer ownership of the policy to the trust. The trust then becomes the policy's beneficiary, and the policy pays out the death benefit to the trust upon your passing. The trust then uses the funds to pay proceeds to the designated beneficiary.
Be sure to consult with a financial professional or estate planning attorney to determine the best strategy for your individual needs and goals.