06 May I’m giving life insurance as a wedding gift. What should I know?

Q. My 20-year-old daughter is getting married and I’m thinking of giving them both life insurance policies as a gift. How much should I buy and what kind? I have a limited budget for this because I want to pay for it every year.
— Parent

A. That’s a very interesting — and valuable — wedding gift.

Choosing the right kind of policy will depend on your financial objectives and your budget.

Let’s cover some of the options.

First, there is term insurance, which is temporary and will eventually expire, said Ed Gaelick, a Chartered Life Underwriter and Chartered Financial Consultant with PSI Consultants in Glen Rock.

Most insureds outlive the protection at which time they will need to revisit this topic, he said. So instead, for young adults, he recommends whole life, provided you purchase a pure whole life policy, preferably from a mutual life insurance company.

“Policies lock in premiums at a young age for life, owners of the policy share in the insurance company’s profits in the form of dividends, build cash value that is not subject to market risk, have guarantees, have tax advantages, values are protected from some creditors, can supplement retirement benefits and provides a death benefit that will increase over time keeping pace with inflation,” he said.

Also, your children will have a policy in place when life insurance becomes more important to them at some point in the future.

“They will also then own a financial product that has already accumulated cash value,” he said. “And starting young will give them more time to accumulate. How much you allocate towards a policy will determine the future values.”

Gaelick said one of the best features of pure whole life is that current values are not market risk sensitive, meaning a downturn in the stock market will not impact the values already in the policy.

You should look at whether a potential policy has a “waiver of premium,” he said. This rider will waive the premium deposits in the event of a total disability. The insurance company will make the deposits for you, protecting the benefits and cash accumulation, he said. You don’t owe that money back. It doesn’t accrue. It is waived. There is no other financial product that does this, he said.

Accumulated values can be used for any reason, Gaelick said. And there’s flexibility. You can surrender some cash value, borrow against the values or a combination of both or take out current dividends, for example.

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This story was originally published on May 5, 2021.

NJMoneyHelp.com presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.