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Multi-Generational Use of Life Insurance

Today it is common for grandparents to be concerned for their grandchildren’s future. The older generation had different opportunities than the younger generation now. The younger generation has different challenges to overcome including college debt, securing a high paying job, and finding an affordable house to purchase. Grandparents want to assist their grandkids with these challenges.

But, grandparents have their own finances to worry about. Having enough money for retirement is a huge concern for older couples now. This means that typical wealth transfer strategies, where you take part of your assets and give it away to a future generation, is not necessarily desirable.

Using your life insurance wisely can not only help you and your spouse, but also your offspring. Multi-generational planning strategy allows grandparents to set aside assets specifically to benefit their grandkids, but can still control those assets during their lifetime.

Multi-generational strategy goes like this: the grandparents purchase a permanent life insurance policy that is intended to insure their children. While the initial beneficiary of the policy is the grandparents, the policy is intended to be used for their children and their grandchildren.

An example from Penn mutual:

“A 76-year-old mother may have $250,000 sitting in a certificate of deposit (CD) earning next to nothing in interest. She would like to do something to benefit my children, but that $250,000 is really my mother’s “fallback money” in case she has a change in her financial status, so she can’t gift it outright to my kids. We’re going to show her how to take that $250,000 to purchase a life insurance policy on my life. The cash value of the policy is going to grow tax-deferred, and it’s likely to grow faster than it would in the CD.

The policy would of course provide a death benefit in the event of my untimely death, which my mother could then use to complete gifting strategies to my children, generation three. If my mother passes away before me, which is more likely, then the policy would be conveyed into a Trust, where the cash value of the policy could be used to provide supplemental income for me, generation two, or for college expenses for my children, generation three.

At my death, the death proceeds from the policy would come into the Trust and then be distributed to her grandchildren, all based on my mom’s wishes as spelled out in the Trust.”

This strategy allows the grandparents to have control over their assets but at the same time provide security for future generations.

In other words, if at any point during their retirement years their situation were to change, they retain complete control over those assets and can redirect them or change them in any fashion they see fit. That’s one of the primary benefits of this planning strategy to generation one. Typically, they can also grow these assets more efficiently than holding them in cash or cash equivalent assets while still retaining access to them.

The grandchildren are the focus of this strategy but the parents can also benefit as well.

The contemporary life insurance market is way more extensive than a source of income for beneficiaries when catastrophe strikes. With a plethora of options, these plans offer you and your entire family peace of mind, and often give your money investment opportunity to allow you to enjoy the money invested during your lifetime.

Choosing the perfect life insurance plan depends as much on your financial needs as it does on your health class rating. We will assess all factors and guide you through every option until we find the perfect plan for you.

Cosmo Insurance Agency is knowledgeable in various options including but not limited to – term, ROP, permanent and whole – from over two dozen A rated carriers. We are familiar with the rate classifications that particular carriers use to determine the health class of enrollees – and there are significant differences between them. No matter what the results of your medical examination are, we will find the insurer that will provide you will the best rating class and thus the lowest premiums.


Securing the Financial Health of Your Grandchildren with Multi-Generational Life Insurance