How to Give Life Insurance as a Gift
While not the most glamorous of gifts, life insurance can be a helpful gift and a method to retain financial security if the worst should happen. Individuals typically purchase life insurance policies with the expectation that an insurer will pay a sum of money known as a death benefit to beneficiaries if the insured individual dies while covered. However, there are other methods to provide life insurance as a present to a loved one.
Gifting Your Own Life Insurance
One of the simplest methods to give life insurance is to name the recipient as a beneficiary of your own policy, which benefits both you and the recipient. You can accomplish this in two methods, each with advantages and disadvantages to consider. In each event, your beneficiary will most likely get your policy's death benefit as a tax-free payment, making the process as simple as possible for them. You may also be able to name a person or an organization, such as a charity, as the beneficiary.
Designating the Recipient as a Beneficiary
You can name your intended recipient as a beneficiary of your life insurance policy while keeping ownership of the policy. In this case, the beneficiary will receive the death benefit following your death, usually in the form of a lump-sum payment. You will, however, retain control of the policy while you are alive. This means you can select a different beneficiary later if you change your mind, or you can designate many beneficiaries if you want to share the benefit payout.
Transferring Ownership of Your Policy
Transferring ownership of your policy to your beneficiary is a slightly more complex alternative. This means that the receiver not only receives the death benefit of your insurance if you die, but also owns the policy itself. They have the authority to amend policies, name beneficiaries, and so forth.
In many circumstances, you can transfer ownership of your policy while continuing to pay premiums on it yourself to keep it current. You should, however, check with your insurance provider to ensure that you don't mistakenly sign up the intended recipient to make payments on an insurance policy that they receive as a gift.
One potential advantage of giving ownership of your life insurance policy is that you may be able to obtain a tax benefit as a result of the process. Transfers of policy ownership may be regarded as contributions, and if your recipient is a charity, it may be deemed a charitable contribution.
 Check with the Internal Revenue Service (IRS) and tax professionals for particular advice about your circumstances.
Buying a New Policy as a Gift
A new policy for someone else is another typical way to give the gift of life insurance. This is a wonderful alternative for a young relative who may not have life insurance otherwise. Among the reasons to consider purchasing a new insurance for your intended recipient are:
Guarantee of Insurability
Some illnesses and other life events can make a person ineligible for life insurance. If you obtain a life insurance policy for a loved one now, you may ensure that they will be protected—and that they will continue to be insured if they keep the policy—before anything happens to make them ineligible. It may also provide you the option of gaining additional peace of mind by acquiring a guaranteed insurability rider, which states that your life insurance policy can be changed without the need for a second medical exam in the future.
Protection Against the Unknown
While it is tough to consider the dreadful situation of a loved one dying, life insurance policies give an important option to provide financial help in the future if this scenario occurs. You have no idea how your recipient's health will evolve over time. Purchasing a life insurance policy for that person helps to assure security if the worst should happen.
Potential for Other Payments
Some life insurance plans can provide cash assistance in circumstances other than the policyholder's death. Certain life insurance plans, for example, have a cash value component that can be utilized to supplement retirement income.
How to Buy a Life Insurance Policy for Someone Else
If you've decided to get life insurance for someone else, you'll most likely need to go through the following steps:
- Compare life insurance policies to get the one that best fits your needs and budget.
- Before obtaining the policy, you must first demonstrate that you have an insurable interest in the recipient, which means that you will suffer financial loss or hardship if the covered person dies. This procedure differs depending on the policy and the supplier.
- Collect the relevant information from the intended receiver, such as complete name, date of birth, Social Security number, and similar information, in order to purchase the policy.
- Obtain the recipient's permission. If you are purchasing the policy on behalf of an adult, you will require their express consent. If you're purchasing the coverage for a minor, you'll need their parent or guardian's permission.
- A medical exam may be required, depending on the policy and the provider's criteria.
- To purchase the coverage from the supplier, complete the registration and purchasing process.
- Maintain premium payments to guarantee that the policy remains active.
If your beneficiary is a child, you may be able to add the child to your existing insurance policy by purchasing a child rider. When the child reaches the age of majority, you can make arrangements to transfer insurance ownership to them. This procedure has the ability to skip some of the preceding phases.
The Bottom Line
Although most people purchase their own life insurance coverage, life insurance can be given as a gift. You can make the gift recipient the owner or beneficiary of an existing life insurance policy or create a new one for them. You must establish an insurable interest in the individual insured and keep the insurance valid by continuing to pay premiums.
While it may appear to be an unexpected gift, providing life insurance can assist prepare your loved ones for financial success in the event of a death in the family.