Life Insurance for My Daughter
A life insurance policy for your daughter, also known as a juvenile policy, is a policy that is purchased by you to insure her life. You, however, actually own the policy until your daughter reaches what is known legally as the age of majority. (Each state determines the age of majority for the insurance policies written in that state.) Once your daughter reaches the age of majority in the state in which she lives, ownership of the policy will be transferred to her. She then has the option to keep the policy in force by paying the premiums or she can choose to surrender it for any available cash that has grown in the cash account.
The Beneficiary is You
As the parent and owner of the insurance policy, the beneficiary of the policy is you. If your daughter were to die while the policy was in force, the amount of the death benefit would be paid to you. Once ownership of the policy is transferred to her at the age of majority, she is free, however, to name the beneficiary of her choice. She can continue the policy with you as the beneficiary, or she can name a grandparent, sibling, charity or her own children as beneficiaries. This is often why juvenile life insurance policies are referred to as gifts that last a lifetime. As long as the premiums are paid when they are due, the policy will remain in force, even for a lifetime.
The youngest age at which a life insurance policy for your daughter can be issued differs among life insurance companies. However, 16 weeks is typical. The oldest age at which a policy can be issued also differs among life insurance companies and the states in which they do business, but it is usually not past the age of 21.
What are the Benefits of Life Insurance for My Daughter?
A life insurance policy purchased for your daughter can provide valuable protection for her entire life. A policy purchased by you today can remain in force for as long as she wishes it to. A permanent life insurance policy that allows for investment growth and the opportunity to build cash value over time can provide cash for a college education or the down payment on a first house.
The cash-building feature of a permanent policy grows tax-deferred. A tax-deferred account can grow significantly faster than a taxed account, because money is not removed from the account to pay taxes. More money remains in the account to earn interest and compound over a longer period of time. If your daughter needs cash but does not want to surrender the policy, she can borrow against it to pay tuition, buy a house or a business. The value of the policy can also be used as collateral for most other kinds of loans. This investment can also help to provide her with a secure retirement. In later years, the death benefit can be used to help protect your daughter's children, if they are named as beneficiaries on her policy.
The premiums due for your daughter's life insurance policy will be the lowest possible rates available. Because she is in the healthiest and least risky segment of the life insurance pool, the premiums charged for her policy will be less than premiums will be at any other point in her life. A policy purchased early in her life will also ensure that she is insurable later in life. Childhood illnesses like asthma will likely trigger higher premiums both later in childhood and later in life.
Once the policy for your daughter is issued, the insurance company will not cancel it as long as the premiums are paid. Most life insurance companies will also suggest a rider to the policy that enables the owner of the policy, either you or your daughter once she has reached the age of majority, to purchase additional coverage at specified times in her life, regardless of her insurability at that particular time.
What Types of Life Insurance Policies are Available for My Daughter?
Life insurance for your daughter can be purchased as term life or as permanent life. A single premium term policy will usually cover your daughter until she reaches the age of 21. The coverage amount usually starts as low as $2,500 but can be as high as $15,000. The coverage amount will vary among life insurance companies. Term life for your daughter will contain the same drawbacks that term life policies for adults contain: Coverage ends when the term ends. Most companies will allow a conversion from a term policy to a permanent policy when she turns 21 or she reaches the age of majority as defined by her state.
The premiums on the new permanent policy will be more expensive than they were for the original term policy. They'll also be higher than they would be if a permanent life policy had been purchased for her initially. If you can, buy the largest permanent policy you can comfortably afford as soon as you can to avoid substantial increases in the future. In doing so, the cost to your daughter, even after she reaches adulthood, will remain affordable.
When Should I Purchase Life Insurance for My Daughter?
As with all policies, a life insurance policy for your daughter should be purchased as early in her life as possible. If you're young or have other financial obligations at the time your daughter is born, you may want to wait a year or two so that premiums will not deplete the cash you need for other expenditures. If you're short on cash, a grandparent, aunt or uncle can always purchase a life insurance policy for your daughter if you are not able to do so. He or she will be the owner and beneficiary of the policy until your daughter reaches the age of majority. Regardless of who purchases the policy, it will grow tax-deferred and can provide a lifetime of savings.
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