Starting a Child LIRP (or IUL for a kid) can provide both financial security and protection throughout all phases of his or her life.
A Child LIRP is an indexed universal life, or IUL policy, the cash value can grow, based on the performance of an underlying market index such as the S&P 500. These plans can offer the chance to attain double-digit upside performance, depending on the stated “cap,” or maximum. We can set you up with the best life insurance companies as we know all the carrier’s products and benefits.
In addition to the opportunity for cash value substantial growth, with a Child LIRP, there is no need to worry about the loss in value – even if the stock market tumbles. That’s because IUL’s provide guaranteed minimum floors of 0%, which keep the principal safe.
As the cash value in the policy grows, it is able to compound on a tax-deferred basis, meaning that no tax is due on the gain. This can allow the money in the policy to grow and compound exponentially over time.
Unlike IRAs and employer-sponsored retirement plans like 401(k)s, there is no IRS “early withdrawal” penalty for accessing funds from a LIRP prior to age 59 ½. This means that money is available at any age, and it doesn’t have to be reported on a tax return.
There is also no funding limit with a LIRP as long as you do not MEC the policy. So, if the child decides to add more money to the plan over time, these funds will also have the benefit of growing tax-deferred. With that in mind, this buying life insurance coverage can offer a great alternative for tax-advantaged growth, even if an individual’s IRA and/or 401(k) have been “maxed out” for the year.
Decide On Term Or Permanent Life Insurance For a Baby
When it comes to life insurance, there are two main types: term life insurance and whole life insurance. Term provides coverage for a set period of time—usually 10 to 30 years—and pays out only if you die during that timeframe. Term life insurance is rarely a good idea for a child.
Permanent life insurance coverage provides protection throughout your entire life, but requires regular monthly premium payments which will build up cash value. When it comes to providing for children’s future education costs, permanent insurance is usually the best choice, as you can build up a lot of cash value and solve many of life’s future challenges when buying this plan.