You may not wrap it up with a bow (though you could!), but life insurance is a gift that’s always in style.

According to the National Endowment for Financial Education, nearly nine out of 10 Americans report that COVID-19 has put stress on their finances. For millions of people this year, financial security has rarely been more important.

Gifting a life insurance policy has its advantages: You can’t outgrow or break it, and people will always appreciate having the peace of mind that financial protection is there if they need it.

If the worst happens, you can feel secure knowing that life insurance will provide a financial cushion to those left behind. Some policies also offer a cash component, or cash value, that can help people meet financial goals during their lifetime. Life insurance can even offer tax benefits, in some cases.

Here are a few ways to give someone you love the gift of life insurance.

Buying a policy for someone else as a gift

One of the most common ways to give the gift of life insurance is by buying a policy for a child.

Insuring a child under 18 while they’re young and healthy is an affordable way to lock in lower premium rates and help ensure they’re able to qualify for life insurance later on. A life insurance policy can also offer cash value, providing a source of savings they can use to pay for college, a car, or the down payment on their first house.

When gifting a life insurance policy to children, keep in mind that you’ll be responsible for keeping the policy active by making regular premium payments. Once the child is an adult, you can transfer ownership of the policy to them. At Fidelity Life, we offer a life insurance child rider that you can add to a new or existing policy, with the option to convert it to a permanent plan of their own when they become an adult.

If your child is already all grown up, buying them their own life insurance policy can help them and their own family prepare financially for the future. If the worst happened, this is money that could provide a lifeline to your daughter- or son-in-law, or your grandchildren. You can also buy policies for other family members to help them meet unexpected expenses down the road, such as buying final expense insurance for your parents to help them cover end-of-life costs, or for asset protection.

To buy a policy for someone else, you’ll need to prove you have an insurable interest in them, like a family member, partner, spouse, or business associate. You should also be able to provide basic information, including their:

• Name
• Date of birth
• Address
• Social Security Number
• Relationship to you

Most importantly, make sure you have their consent before you move forward (or the consent of their parents, if they’re a minor).

Giving your own life insurance policy as a gift

Life insurance provides a tax-free cash payout that comes with no strings attached. You can gift a life insurance policy to a child, grandchild, or even your favorite charity.

There are two main ways to do it:

Transferring ownership of a policy

This involves making another person or organization, like a charity, both owner and beneficiary of the policy. After you die, the new policy owner then receives the full cash payout. Typically done with permanent policies, a policy ownership transfer still requires you to keep paying premiums so the policy stays active, much like gifting a policy.

There are several potential tax advantages of giving your policy to a charity. Policy ownership transfers are considered donations and any charitable donations can significantly reduce your taxable estate, or the assets you own that can be taxed after your death.

You can also deduct any premiums you pay as part of the donation and even claim a further deduction for some of the policy’s value, generally up to 50% of your adjusted gross income.

To make sure if this is an option for you and that you can get the most tax benefits for your gift, confirm that your chosen charity is a certified 501(c)3 and able to accept your policy as a donation. Talk to a financial advisor before making a commitment so they can help you understand how it works.

Naming a person or organization as a beneficiary on a policy

In this scenario, you remain the policy owner and the person or organization you choose is the beneficiary of the payout when you die. Unlike with a policy ownership transfer, you can change your mind later and name a different beneficiary. You can also choose to split your life insurance with gift designations among multiple people, so they all can receive your death benefits.

Naming a beneficiary doesn’t offer the same tax advantages as transferring your policy, but you can still reduce your taxable assets by donating some of your death benefit to a favorite charity.

Want to give the gift of life insurance?

We’re here to walk you through the process so you can give a loved one the protection they need. Contact us to speak with one of our agents or start your online quote today.

At Fidelity Life, our goal is to make life insurance simple, affordable, and understandable for everyday families. This content is intended for educational purposes only. Each post is carefully fact-checked, reviewed, and updated regularly to ensure the information is as relevant as possible.