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Juvenile Life Insurance as a Financial Planning Tool

Besides it’s important protection benefit, juvenile life insurance’s cash value benefit can be used to help fund college costs, as a retirement supplement, and for estate planning.

  • Buildup of tax-deferred cash value inside the insurance policy.
  • A policy can be fully paid in as little as ten years.
  • Flexible access to cash value. Cash can be withdrawn or received as a guaranteed loan at any time, without a credit check or lender approval.
    • All whole life insurance policy guarantees are subject to the timely payment of all required premiums and the
      claims paying ability of the issuing insurance company. Policy loans and withdrawals affect the guarantees by
      reducing the policy’s death benefit and cash values.
  • Death Benefit is received free of income tax.
  • In most states the cash value of a juvenile life insurance policy is protected from creditors and lawsuits
  • If structured using a trust, the ultimate payout of a policy may not be subject to estate tax, or the public and contestable probate process.
  • Can be funded using gift tax or generation-skipping tax exclusion amounts.
    • Guardian, its subsidiaries, agents, and employees do not provide tax, legal, or accounting advice. Consult your
      tax, legal, or accounting professional regarding your individual situation.
Policy benefits are reduced by any outstanding loan or loan interest and/or withdrawals. Dividends, if any, are affected by policy loans and loan interest. Withdrawals above what is paid into the policy may cause ordinary income taxes to be paid on the gain portion of the policy. If the policy lapses, any withdrawals or loans considered gain in the policy may be subject to ordinary income taxes. If the policy is a Modified Endowment Contract (MEC), loans are distributed like withdrawals. All withdrawals are distributed as gain first and subject to ordinary income taxes. If the insured is under 59 1/2 the gain portion of the withdrawal is subject to a 10% tax penalty.

Most insurance carriers require that a parent have a life insurance policy in place prior to purchasing a policy for a child. A policy purchased for a child can have a face value up to half that in place for the parent (in New York it is up to a quarter of that which is in place for the parent up to the child’s fifth year). A grandparent is eligible to purchase a policy for a grandchild with fewer limits.

Cash Value

The growth of the cash value inside an insurance policy in a tax-deferred environment (through guaranteed interest and credited dividends) creates lifetime cash accumulation opportunities that can be used for any purpose: to pay for college, finance the purchase of a home, establish a supplemental source of retirement income, or provide security, maintenance and support for future generations.

Dividends are not guaranteed. They are declared annually by Guardian’s Board of

Guaranteed Growth

Many insurance companies offer policies with a guaranteed interest rate plus a non-guaranteed dividend. Each insurance company’s dividend is determined by its mortality, investment performance, and administrative expenses.

Lifetime Benefit

The tax-free buildup of guaranteed interest and non-guaranteed dividends within an insurance policy provides a source of funds that are accessible, at any time, for any purpose, and without penalty. The policy owner (typically a parent) controls access to funds and their use. After a child has reached adulthood he or she can be given ownership and control of the policy or it can remain in a trust. In either case, it provides coverage to meet the future insurance needs of the child, and a source of cash for the child’s family.

529 Plans

What Are The Advantages Of A 529 College Savings Plan?

Tax-deferral can have a dramatic affect on the growth of an investment. With a state-sponsored 529 College Savings Plan your contributions can grow tax-deferred (some states allow contributions to be partially or completely deductible) and distributed income tax-free as long as distributions are used for qualified education expenses such as tuition, fees, room and board at higher education institutions.

There is no limit on contributions but some states tend to limit contributions once the plan assets have reached a defined maximum. You can contribute $14,000 (single)/$28,000 (married, filing jointly) in a single year without incurring a gift tax. You can also benefit from accelerated gifting where you can make up to five years’ worth of gifts ($70,000 if single/$140,000 if married, filing jointly) to a 529 plan account beneficiary in one year without incurring gift taxes.*

*In the event the donor does not survive the five-year period, a pro-rated amount will revert to the donor’s taxable estate. For more information, consult your tax advisor or estate-planning attorney. You should consider before investing whether your or the beneficiary’s home state offers any state tax or other benefits that are only available for investments in such state’s qualified tuition program.

Assets are professionally managed by fund managers selected by the state. A 529 plan generally offers several different types of portfolios in which you can invest, including age-based and individual portfolios. Control of the account remains with the contributor regardless of the age of the beneficiary.

Before investing in a 529 plan, please consider the investment objectives, risks, charges and expenses carefully before investing. The official disclosure statement and applicable prospectuses, which contains this and other information about the investment company, can be obtained from your financial professional. Be sure to read the prospectus carefully before deciding whether to invest.

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