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FINANCIALLY Speaking The Gift Of A Lifetime A melia, our youngest granddaughter, recently celebrated her first birthday. On occasions like this, many grandparents buy toys, clothing, books or games, but we took a different approach, just as we did for Amelia’s older sister and cousins. Instead of purchasing a toy that will be used up and forgotten within a short time, we purchased a gift that is designed to be useful throughout Amelia’s entire lifetime – permanent life insurance. While this may not seem as ‘fun’ or ‘exciting’ as the many other gifts Amelia might receive at her birthday party, my wife and I wanted to take advantage of an opportunity to provide a greater blessing in the future. You see, the best time to buy life insurance is when you are young and healthy, as the cost of insurance will never be lower. Unfortunately, many young adults don’t yet have enough money to buy insurance. When someone is graduating from high school or college, or getting married, or as in this case, celebrating her first birthday, there is a great opportunity for a parent or grand- parent to purchase permanent life insurance for them. Here are some of the important benefits of giving the gift of life insurance to a child: 1. It can lock in their insurability, hedging against unforeseen health issues that might pre- vent them from getting life insurance later in life. 2. It starts building cash value early on, and setting up a policy early on gives the money more time to compound over the life of the beneficiary. This larger cash value can be leveraged when it comes time for your child or grandchild to go to college or buy that first home, or eventually, even for income in retirement. 3. It locks in lower premiums. It’s much cheaper to purchase life insurance when you’re young and healthy. Covering those first few years of your child’s or grandchild’s insurance premium can help them take advantage of lower premiums. Jeffrey M. Orth is a Chartered Financial Consultant, a Certified Advisor in Senior Living, and an Investment Advisor Representative, with over 15 years of experience as a business and personal planning, insurance, and wealth management specialist. Jeff is available for group lectures and private consultations. Visit or call 408.842.2716. 1380257RM-Dec17 50 4. It instills a sense of responsibility. This is why life insurance makes a tremendous wedding present. Marriage is the gateway to a world of larger responsibilities … a mortgage, a spouse and children. Yet studies have shown that up to 23 percent of families with children under the age of 18 have no life insurance. And many of those who do have life insurance often find they don’t have enough. 5. It provides a death benefit. In an era when students are graduating from college with an average of $33,000 of student loan debt, not to mention credit card debt and rental agreements on apartments, many young people have a surprisingly large amount of final expenses. Of course, buying life insurance is a big decision, and there are some things to consider: How much insurance to buy. This depends largely on the circumstances around the gift. For most parents or grandparents, a gift of a small amount of insurance, perhaps $100,000 or so is a good place to start. This provides a good foundation of immediate protection, but it leaves room for additional insurance as income, assets and responsibilities grow. LONG TERM AFFORDABILITY. Unless the premiums are going to be gifted in perpetuity, at some point the child or grandchild is going to take over the responsibility of paying the premium, and they need to have the means to assume that responsibility. WHO OWNS THE LIFE INSURANCE? Ultimately, the child or grandchild should own the policy, but many times the policy starts off being owned by the person who gives it, and is later transferred to the insured, when they are ready and able to assume the financial responsibility. THE TAX IMPLICATIONS OF THE GIFT. It is considered a gift when ownership of a life insurance policy is transferred to the insured. If the policy is owned by the insured but the premium is paid by someone else, it is also considered a gift. The amount of the gift depends upon the value of the policy when it is transferred. Gift taxes can be avoided if the amount is under the annual gift limit of $1,400 per person ($2,800 for a couple), and does not exceed an individual person’s ‘life- time gifting’ amount (currently $5,430,000). It’s a good idea to consult with your tax advisor before finalizing your decision in this area. GIVING LIFE INSURANCE AS A GIFT is a time-honored tradition that many families have carried on for generations. Used as the center of a sound financial plan, it can still be there, helping your loved ones throughout every stage of their lives – regardless of changes in their health or occupation. The next time you are thinking about what gift to get your loved ones, perhaps it’s time to start a new tradition in your family. All guarantees are based on the claims paying ability of the issuer. Any reference to the taxation of life insurance products in this material is based on Penn Mutual’s understanding of current tax laws. You should consult a qualified tax advisor regarding your personal situation. Accessing cash values may result in surrender fees and charges may require additional premium payments to maintain coverage and will reduce the death benefit and policy values. For more information on coverage, please write or call your financial professional. Registered Representative of, and Securities and Investment Advisory Services offered through Hornor, Townsend & Kent, Inc. (HTK). Registered Investment Advisor. Member FINRA/SIPC, 16845 Von Karman Ave, Ste. 225 Irvine, CA 92606 (949)754-1700. IFIT is independent of HTK. CA Lic #0C49291 GILROY • MORGAN HILL • SAN MARTIN JULY / AUGUST 2016