Cascading life insurance is a concept based on the grandparent or parent buying a life insurance policy on the life of a grandchild or child. As the owner of the policy, the grandparent or parent retains full control of the policy until he or she feels that the grandchild or child is responsible enough to maintain it. Grandparents and parents can easily work together to split the premiums, or in many cases the grandparents would start paying for the premiums, and the parents would take over when their financial situation improved. As the owner of the policy, not only does the parent or grandparent decide how and when to transfer the policy down the generations, but as the owner, the parent or grandparent also controls the money inside the policy, and can decide to borrow or withdraw from it at any time. Only when the policy ownership is transferred to the child or grandchild (see “Absolute Assignment”), will the control of the policy be passed over.
This approach is called “cascading” because the ownership of the Whole Life policy can cascade down through the generations within a family. In an approach similar to many longstanding families of wealth such as the Rockefellers or Rothschilds, grandparents can buy policies on the life of their grandchildren, effectively helping to replace each generation of wealth and enabling each new generation to access money through a powerful financial tool. This is an amazing way to leave a legacy and allow the child or grandchild to benefit from a policy that might have been set up as early as 2 weeks after birth. Insuring a two week old baby is pretty easy, and once the policy is in place, it is there for life and has the opportunity to grow tax free within the policy over an entire lifetime. Should the child develop a medical condition later in life, or get hurt in an accident, the coverage will always be there.
Another advantage of this concept is that unlike other investments that can lose a significant part of their growth to annual taxes and estate transfer taxes, the values within a Whole Life insurance policy grow tax-free and are passed down the generations tax-free. Once a policy is transferred tax free to the younger generations, they will have access to the cash values to borrow or withdraw money, thereby initiating the creation of a “Family Bank” (see “Phase 5 – Setting Up a Family Bank” for more information).