How to Give Life Insurance as a Gift

Nathan Reiff has been writing expert articles and news about financial topics such as investing and trading, cryptocurrency, ETFs, and alternative investments on Investopedia since 2016.

Gordon Scott has been an active investor and technical analyst or 20+ years. He is a Chartered Market Technician (CMT).

Vikki Velasquez is a researcher and writer who has managed, coordinated, and directed various community and nonprofit organizations. She has conducted in-depth research on social and economic issues and has also revised and edited educational materials for the Greater Richmond area.

1. How to Give Money (and Other Digital Assets) as a Gift
2. How to Give Stocks as a Holiday Gift
3. How to Give Bonds as a Gift
4. How to Give an Exchange Traded Fund as a Gift
5. How to Give Gold or Silver as a Gift

1. How to Give a Donor Advised Fund as a Gift
2. How to Make an IRA Contribution as a Gift
3. How to Make 529 Plan Contribution as a Gift
4. How to Gift Your Credit Card Rewards, Points, or Miles
5. How to Give Life Insurance as a Gift

1. How to Give a Car as a Gift: A Comprehensive Guide
2. How to Give Cryptocurrency as a Gift
3. Helping Your Child Buy a Home
4. Pros and Cons of Gift Cards
5. Small Business Employee Gifts: Tax Rules and Other Considerations

1. Gift Taxes: What You Need to Know
2. Gift in Trust: What You Need to Know

While it may not be the most glamorous of presents, life insurance can be a valuable gift and a way to maintain financial security if the worst happens. In most cases, individuals take out life insurance policies with the expectation that an insurer will pay a sum of money known as a death benefit to beneficiaries in the event that the insured individual dies while under coverage. But there are actually a variety of ways that you can offer life insurance to a loved one as a gift.

Key Takeaways

• Life insurance policies provide a financial benefit to beneficiaries in the case of the death of the policyholder.
• While most people buy life insurance for themselves, it is possible to give it as a gift, either by designating the gift recipient as the owner or beneficiary of an existing policy or by establishing a new policy for them.
• When establishing a new policy, you’ll need to provide proof of insurable interest, the recipient’s consent and personal information, and potentially a medical exam and other information.
• To ensure that a life insurance policy remains active, either the gift giver or the recipient will need to continue to pay insurance premiums.

Gifting Your Own Life Insurance

One of the most straightforward ways to gift life insurance—both for you and for the recipient—is to designate that recipient as a beneficiary of your own life insurance policy. You can do this in two primary ways, both of which have advantages and disadvantages to consider. In each case, your recipient will most likely receive the death benefit of your policy as a tax-free payment, making the process as easy as possible for them. You also may be able to name either a person or an organization such as a charity as your beneficiary.

Designating the Recipient as a Beneficiary

If you wish, you can name your intended recipient as a beneficiary of your life insurance while remaining the owner of the insurance policy. In this scenario, the beneficiary will receive the death benefit upon your death, typically as a lump-sum payment. However, you will retain control of the policy while you are living. This means that you can name a different beneficiary at a later date if you change your mind, or that you can decide to name multiple beneficiaries if you would like to split up the benefit payout.

Transferring Ownership of Your Policy

A somewhat more involved option is to transfer the ownership of your policy to your recipient. This means that the recipient not only receives the death benefit of your policy in the event that you pass away but also is the owner of the policy itself. They can make policy changes, name beneficiaries, and so on.

In many cases, it is possible to transfer ownership of your policy but continue to pay premiums on that policy yourself to keep it active. However, you should check with your insurance provider to make sure that you don’t inadvertently sign up your intended recipient to make payments on an insurance policy that they receive as a gift.

One potential benefit of gifting the ownership of your life insurance policy is that you may be able to achieve a tax benefit through the process. Policy ownership transfers may be considered donations, and if your recipient is a charity, it may constitute a charitable contribution. Be sure to check with the Internal Revenue Service (IRS) and tax professionals for guidance surrounding your specific situation.

Buying a New Policy as a Gift

Another common way to give the gift of life insurance is to purchase a new policy for someone else. This is an excellent option for a young relative who may not otherwise have life insurance. Some of the reasons to consider buying a new policy for your intended recipient include:

Guarantee of Insurability

Some illnesses and other life events can render an individual ineligible to qualify for life insurance. If you purchase a life insurance policy for a loved one now, you can guarantee that they will be insured—and if they maintain the policy, that they will continue to be insured—before anything may happen to render them ineligible. It also may provide you the option of securing additional peace of mind by purchasing a guaranteed insurability rider, which stipulates that life insurance coverage may be amended without the need for a second medical exam in the future.

Protection Against the Unknown

While it is difficult to think about the tragic situation of a loved one dying, life insurance policies present a crucial way to provide financial support at some point in the future if this scenario comes to pass. You don’t know how your recipient’s health will progress over time. Buying that person a life insurance policy helps to ensure security if the worst should happen.

Potential for Other Payments

Some life insurance policies can provide financial support in situations other than the death of the policyholder. For example, certain life insurance policies also include a cash value component that may be used to supplement retirement income.

How to Buy a Life Insurance Policy for Someone Else

If you’ve decided to purchase a life insurance policy for someone else, there are several steps that you’ll likely need to complete:

1. Shop around for life insurance policies to find the one that best meets your needs and budget.
2. Before purchasing the policy, you will first need to demonstrate that you have an insurable interest in the recipient, meaning financial loss or hardship should the insured person pass away. This process varies depending on the policy and provider.
3. Gather necessary information from your intended recipient to purchase the policy, including full name, date of birth, Social Security number, and similar data.
4. Obtain the recipient’s consent. If you are purchasing the policy on behalf of an adult, you’ll need their consent directly. If you’re purchasing the policy for a minor, you’ll need the consent of their parent or guardian.
5. If necessary per the policy and provider’s guidelines, the recipient may need to receive a medical exam.
6. Complete the registration and purchasing process to buy the policy through the provider.
7. Maintain payments of the premiums to ensure that the policy stays active.

If your recipient is a child, you may be able to purchase a child rider to add the child to your existing insurance policy. When the child becomes an adult, you can arrange to transfer the policy ownership to them. This process can potentially bypass some of the steps above.

Is It Possible to Give Life Insurance as a Gift?

Yes. It is possible to give life insurance by making your recipient the beneficiary or owner of your own life insurance policy, or by buying that person a new policy.

What Are the Benefits to Giving Life Insurance as a Gift?

Life insurance is designed to provide financial stability during incredibly difficult times. By making the gift of a life insurance policy, you are setting up your loved ones for success in the worst of times. Giving a child a life insurance policy guarantees that the child won’t run into eligibility issues down the line.

What Information Will You Need to Give Life Insurance as a Gift?

You’ll need to be able to prove insurable interest relating to the party in question. You’ll also need to have personal information for your recipient, including date of birth, full name, and Social Security number. If you’re setting up a new policy, you’ll need that person’s consent (or the consent of a parent or guardian in the case of a minor), and the recipient will likely need to complete a medical exam.

The Bottom Line

Although people commonly buy their own life insurance policies, it is possible to give life insurance as a gift. You can either designate the gift recipient as the owner or beneficiary of an existing life insurance policy or establish a new policy for them. You will need to demonstrate an insurable interest in the person covered and ensure that the policy remains active by continuing to pay the premiums.

While it may seem like an unlikely gift, giving life insurance can help set up your loved ones for financial success under the difficult scenario of a death in the family.