By Dr. Jim Dahle, WCI Founder
WCI readers continue to ask about buying child life insurance and if it's worth it. I would hope that most long-term regular readers already know the answer to this question. But I'm seeing it enough that it is clearly worth addressing.
Should I Buy Life Insurance for My Child?
Not no, but heck no. Child life insurance, like most permanent insurance, is a product made to be sold, not bought. Let's consider the reasons why. And then we'll try to find some articles advocating for buying life insurance on your child and debunk them.
Why Child Life Insurance Is Not Worth It
#1 Your Child Has No Income
The main purpose of life insurance is to replace the necessary earned income of a breadwinner. If you are financially independent, you don't need life insurance. If you depend on someone else for your income/lifestyle, then you don't need life insurance. Now, a reasonable case can be made to carry some amount of life insurance if you contribute in an economic way to a household, even if that way isn't a paycheck (think stay-at-home mom whose household duties might cost $30,000-$100,000 per year to replace), but that doesn't apply to a child. I have no doubt in my mind that if, heaven forbid, one of my children died, that my household expenses would go DOWN, not up.
#2 A Typical Burial Isn't That Expensive
Others advocate that you should buy life insurance for your child to pay for their burial expenses. “It's only pennies a day,” they say. Well, the reasons it's only pennies a day are that it's extremely unlikely that your child will die and because a burial cost isn't that expensive, either. A typical burial is < $10,000. If you can't cover $10,000 out of either your current earnings or your emergency fund, you have a lot bigger financial problems than whether to insure your children. But sure, if that would be a financial catastrophe for you, then buy your kid a $10,000 life insurance policy.
#3 It Doesn't Preserve Insurability (Maybe)
Some people buy life insurance on their kids thinking it will be great for them in case they develop diabetes at age 8 or something and can't buy life insurance as an adult. However, their life insurance need as an adult is likely to be $500K-$5M, and that doesn't even include the effects of inflation over the next 20-50 years (which at 3% turns that $500K-$5M into $900K-$9M at 20 years and $2.2M-$22M at 50 years). Do you really think that $10,000 whole life policy is going to make any kind of significant dent into that kind of need? Not a chance. This isn't a disability insurance policy that is sold with a “Future Purchase Option” rider. There's no guarantee they can actually buy more life insurance at a reasonable price later. And nobody is going to buy a $2M whole life policy on their child. Give me a break. If you're buying life insurance from the same company that sells you baby food, there's an issue.
In the comments section of this post, there's a discussion about how insurance companies provide “Guaranteed Insurability Riders” for juvenile policies. For instance, if someone purchases a $100,000 life insurance policy for their child, they can opt for this rider, granting multiple opportunities to increase coverage once the child reaches a certain age (typically over 25). Some carriers even offer 8-9 different chances, each matching the original face amount of the life insurance. This feature could potentially allow for a more substantial benefit, safeguarding the child's insurability in case of a health event that might complicate obtaining life insurance as an adult. However, it's important to note that this option limits the child to purchasing whole life insurance, excluding term life. Nevertheless, for parents or grandparents seeking a rationale to invest in life insurance for a child, this could be a viable consideration.
Only one person in this picture carries life insurance. Guess who?
#4 Life Insurance Is a Terrible Investment
In case you've never read through my series on The Myths of Whole Life Insurance (most of what is sold for children) it is important that I point out that the returns on a whole life insurance policy are terrible. Often negative for a decade or two, they are only guaranteed to be about 2% over a lifetime and projected to be perhaps 3%-5%. The smaller the policy (like most child policies) the lower the return due to more of it being eaten up by administrative and insurance costs.
#5 Nobody Knows What to Do with an Inherited Life Insurance Policy
I'm always seeing posts from people who were given a life insurance policy at 25 or 40 that their parents had been paying on for decades. The analysis of what to do with it is always complicated. In many ways, they're inheriting your poor decision. Don't do that to your kids.
#6 If They Don't Die, They Can Use the Cash Value in Their 20s
The worst part about giving the kids your bad decision (to buy whole life insurance on them) is that if you had only given them something with a higher return, they'd be getting a lot more money and with a lot fewer strings attached. The likely return on whole life after 20-30 years is probably 0-2%. If you had just given them shares of a good stock index fund, that return could be more like 7%-10%. That makes a big difference over decades, not to mention the better tax treatment on gains when they cash it out. It would be even better if you gave them the money in one of the three ways I'm giving my kids money:
#1 A Roth IRA
The daddy match allows all their earned income to go into a Roth IRA, never to be taxed again, while they spend the equivalent amount of my money.
#2 A 529
If used for college, a 529 account is a way better plan than anything else. Not only is there an upfront state tax break in many states, but all earnings are tax-free.
#3 A UGMA
For those non-college expenses, it's better to have the money in their name, so it is only taxed at their lower tax bracket. In fact, unless it becomes a really big account or is invested very tax-inefficiently, chances are it won't be taxed at all.
OK, enough ranting about conniving insurance salesmen duping the financially illiterate into purchasing a product made to be sold at one of the more emotional times of life (and sometimes even while they're still in the hospital after delivery).
What Do Others Think of Child Life Insurance?
Donna Fuscaldo at Fox Business does a typical journalist article where she doesn't give her opinion. She just found someone with opinions on both sides of this “argument” and presented their views. She talked to someone who sells life insurance:
With a term policy, Bill White, vice president, life insurance and annuity product line leader at insurer USAA, says the insurance is added as a rider and once the child grows up, it can be converted to the child’s own $100,000 policy. He adds that type of coverage would ensure if the unthinkable happened, the funeral costs would be covered.
And someone with some sense:
“You buy insurance strictly for risk protection,” says Tony Steuer, creator of Insurance Literacy “Because it’s mixing in two different types of financial products, it’s not taking the best of either one.” “Buying life insurance as an investment made sense back in the 1940s when there were limited options, but today there are countless ways to grow money with relatively low risk taking,” says Steur, pointing to an exchange-traded fund with low fees.
The article does point out the only valid reason for life insurance on a child that I could find—if your child supports you financially.
One instance where buying a life insurance policy on a child makes sense is situations where the parents are dependent on their child for their livelihood (think Miley Cyrus or other child stars).
I would point out that if you are reading this blog, it is highly unlikely you're in that situation. Even if your child is a star, you're probably not financially dependent on them.
Here's one from the Insurance Information Institute (sounds unbiased, right?) It talked about the usual wrong reasons to buy insurance, then throws out this beauty:
Still another reason for buying life insurance on a child’s life is part of a program to teach the child financial responsibility. Typically the insurance is whole life insurance, ownership of which is transferred to the child when he or she turns 21.
Sounds like a good way to teach your child to be financially illiterate to me, or at least demonstrate to them your financial illiteracy as soon as they realize what you've done.
U.S. News got it right, when it wrote an article titled 4 Types of Life Insurance You Should Never Buy:
2. Life insurance for children. In general, life insurance for kids is a huge waste of money. That’s because (thankfully) most children are born healthy and live a very long time. And since children don’t have any income, you don’t really have any reason to insure their lives, as cold as that may seem. Just because you don’t buy insurance doesn’t mean you don’t love your children. It means you are smart enough to put that money to better use—like saving for a college education.
I love the line about how it doesn't mean you don't love your kids if you don't insure them. Take that, Gerber!
Do your kids a favor—ensure financial independence for yourself, then put something away in a higher-returning investment inside a tax-protected account that they can use in their 20s when they can really benefit from your help.
What do you think? Did you purchase life insurance on your child? Why or why not? Do you regret it? Did your parents buy life insurance on you? Was it helpful? Comment below!
[This updated article was originally published in 2017.]
I beg your pardon, but in the subtitle to the link, don’t you mean a product meant to be sold, not bought?
You’re right of course. Fixed.
Insurance topics bring out the cray cray! Good topic, though I’m enjoying reading the comments more than the article.
What about accidental death and dismemberment policies on children? These are typically very cheap for $50K coverage. I an imagine a scenario where the loss of a limb could result in some very expensive accommodation costs. There may or may not be a responsible party for a suit in such a case. A cheap policy here seems like a cheap hedge against a low probability but high complexity event. To be clear, it is the dismemberment part of this that seems useful, not the accidental death part, but they are typically sold as a pairing.
I can imagine a lot of scenarios where one could buy insurance. But the main strategy remains- insure against financial catastrophes and self-insure against everything else with an emergency fund.
If I’m going to buy life insurance, I want it to cover every cause of death, not just accident. I see accident death and dismemberment as “gimmick” insurance and would recommend against it for the vast majority.
I once met a guy who bought it for “Grief Counseling Insurance.”
It’s a free country, but he could afford to take some time off if needed. Seemed like a solution, looking for a problem.
Ok. fess up time. I am a much bigger fan of WL policies than WCI (which is not saying much). Maybe at some point I would post why I have WL policies on my wife and myself (but would still not go so far as to recommend them to most, if anybody for the myriad reasons above and on other pages).
My grandfather bought WL on me w some sort of guaranteed re-up rider that my dad exercised at least 3-4 other times. I don’t have the data on what he spent on it over the years, but I don’t think it was all that much.
My dad borrowed against the polices to get cash to refi some of his real estate several years back when rates were falling, but lending was really tight as we just came off the housing crisis. I recently took the policies over and paid off the loans he had taken out.
While this is a very convoluted scenario, and far from a reason to buy anything from gerber other than carrots, it did help my dad lower his monthly carrying costs substantially. At the time, I was a resident, so not able to write a 40k check to help out pops. I look at it (justify it to myself) as loaning my dad some money while a kid, but paying it off as an adult.
[Now, the arguments about how our family’s saving rate should have been higher all along so the “bank of yourself” was actually your SAVINGS ACCOUNT IN THE BANK explain why my father’s son is a risk-averse financial blog reader and not a leverage-lover like pops. But if the money is just burning a hole in your pocket and you hate wake boats, it could sometimes be but to some use. rarely.]
As I’ve said many times before, if you really understand how it works and still like it (and have no better use for your money) then buy as much as you like. If it is structured well and you hold it for life, you are going to have a low, but positive return on your money plus life insurance. That’s hardly the worst thing in the world. Although a wakeboat is probably more fun.
A wakeboard would be more fun .. kinda like shark diving, that’s fun, too.
There are many pros to a properly structured WL policy but somehow on this site people have decided that based on 100 or 200 comments, WL is a waste and now just about everybody states like it is a ‘fact’ that it is a waste.
What I don’t understand is why high net worth people will insure their cars, homes, toys, boats, vacation homes, trips, jewelry, AAA for a car breaking down, Lifelock for identity theft, earning power through disability insurance, their offices, umbrella coverage for excess liability .. the one thing they don’t want to insure is the money they have accumulated in their lifetime. Makes no sense to me.
And with all due respect White Coat, but in an earlier post, who made the decision that people ages 60+ don’t need insurance? You gotta be careful with blanket statements that one might think serve the masses but there are millions of masses that do have needs. Parents are moving back in with kids, kids are moving back in with parents, and while this site which caters to high net worth individuals is fascinating to read, it amazes me that just about everyone here assumes that they are going to be high net worth and they are going to always be high net worth and they will never run into any unforeseen issues that decimate them. And I have seen people get decimated right and left since 2008/9. Yep even high net worth people (and not just the Nicholas Cages and Mike Tysons of the world.) My own dentist got hit with a bizarre lawsuit that he lost and the judgement came in at $4M and his insurance only covered $2M of it. He got wiped. And it does happen.
I have WL, in fact two policies. One NYL, one MM. They have tremendous cash value. Property structured so that on a (for example) a $50,000 yearly premium which is my new one of which only $11,200 of it is actual life, the rest is PUA .. if the world went to crap and I had to live only on the cash in the policies, I could. Contractually guaranteed at a certain minimum (unlike a Universal which cannot do that, only a stated minimum). I have no worries about my future if a worst case scenario develops. I will have a terrific retirement if all goes well, conversely.
BTW, on a $50,000 premium that is all WL, the agent makes, on average with MM, a 55% commission. Pretty nice $28,000 check. On my $50,000 premium the way mine is structured, my agent made $6940 — 55% on the $11,200 and 2% on the PUA which is the rest. This is a large reason many agents do not want to sell a high cash value designed policy. And why few truly understand it. In my opinion, the biggest problem with most agents is that they go for the big commission. Why work for $6940 when you can work for $28,000?
I was talking to somebody that uses Ohio National. Their first year commissions, oh they ain’t 55%. Try 130%. No wonder that family business of 8 agents uses Ohio National.
Glad you’re happy with your policy. Let me refer you to how whole life is typically sold to high income professionals:
https://www.whitecoatinvestor.com/forums/topic/inappropriate-whole-life-policy-of-the-week/
Then you can see why I spend time writing about it so people can avoid wasting their money like that.
I agree both wakesurfing and shark diving are fun.
I anticipate dropping my life insurance by age 45. The purpose of life insurance is to replace my income between the time when someone else besides me depends on it and when I reach financial independence. Once you are financially independent, the need goes away. Most high income professionals who become financially educated should be able to be financially independent by 60. That’s why most high income professionals don’t need life insurance after 60. Not sure what’s so complicated about that.
Whole life insurance is an even worse deal for “the masses” than it is for high income professionals. The “masses” almost surely have a better use for their money than whole life insurance. Most aren’t even maxing out retirement accounts which have far superior tax treatment to WL.
Shelter Insurance sells a Junior Special policy that is a term policy until age 26. You can purchase 5k-20k in coverage (20k policy cost $555 – one time payment). At age 26 it can be converted to a permanent policy up to 5x the original value without any evidence of insurability. The new policy will have the guaranteed insurablility rider that allows you to purchase the new amount of the policy at 5 different times in their life. It can also include the waiver of premium if you choose.
This policy has been a life saver for us. Our son developed permanent disabilities and would NEVER be able to get insurance. Now he is guaranteed to have insurance for life and I won’t even have to pay any additional premiums since he is disabled. He will have a total of 600k in life insurance for free by the time he is 40.
I think life insurance is good a on child for a lot of reasons. One is to guarantee their future insurability. Another reason is even though a child does not have an income, you do. How much work are you going to miss while you mourn the loss of your child??
I know you said that if you can’t afford a funeral you have bigger things to worry about, but funerals are expensive. I don’t know anyone who wouldn’t feel the hurt of shelling out 10k to bury their child. I know a family who could not afford the funeral and had to take out a loan to bury their kid. How much would making that payment each month hurt you emotionally? Not fun.
Also, I know you said it isn’t a good investment tool (for whole life policies), but how many people do you know that are disciplined enough to actually put the money away to save every month? Everyone would like to say they are, but in reality, people don’t invest the money. Then they have NOTHING to show for it. I would rather be protected and have a small return, then have nothing because I couldn’t be disciplined enough to save/invest it.
Sorry to hear about your son’s disability.
I disagree that buying life insurance on a child is a good idea, despite your anecdote.
If you’re worried about affording burial expenses, then buy a $10K policy. That should not be a concern for a regular reader of this website’s target audience, which generally makes $15-50K+ a month during their peak earnings years.
But this great benefit you feel your son has isn’t that great. First, it’s a permanent policy, which is less than ideal for high earners, much less low earners and the disabled. Second, it’s at most $20K * 5 = $100K, which simply isn’t enough insurance for someone with a legitimate need for it to replace an earner’s income. Unless he buys more and more and more of it at every opportunity. At which point, it’s $600K, which might be enough for a low earner, except for the effects of inflation. $600K from 40 years ago is only $117K today at 4% inflation. ($177K at 3%).
I also disagree that forced savings somehow turns someone who isn’t disciplined enough to save money into a saver.
I don’t think readers will be surprised to learn you are an insurance agent with Shelter Insurance.
Is this true Julie?
“I don’t think readers will be surprised to learn you are an insurance agent with Shelter Insurance.”
Of course it’s true. Do you need a link? Just Google her name (embedded in the email address) and her profile on Shelter Insurance’s page pops right up. There’s a Linked In profile and Facebook. We’re not nearly as anonymous online as we think we are.
But that’s all fine. Insurance agents are allowed to post here. But a lot of newer readers aren’t as good at recognizing that 95%+ of the “pro-whole life” comments I get on this site are written by people who benefit financially from its sale. So I point it out when the agent fails to do so.
Thanks for the info Julie, I was interested and going to do some research but unfortunately, it’s not available in Minnesota.
I have my master’s degree in actuarial science because I have always been fond of insurance. My grandpa started an agency that my mom went on to take over. I had no intentions to be an agent, but given my situation with my son my employment options are limited. I do work for my mother at her agency.
I found this thread while googling children’s life insurance. I did not realize that this is a website targeted for high income people. I am not high income, so my view points are more based on the middle class 40-100k a year type people.
I have been back and forth on how I feel about life insurance. There were several times throughout my life that I tried to cash out my whole life policies only to have my mother talk me out of it. Now I’m glad that she did because the last time I tried to purchase additional insurance, I was denied due to medical conditions. I know that life insurance is not for everyone, and it definitely has its fair share of cons – but I think it has plenty of pros too. For the middle class, it is being able to not burden their children and it gives an opportunity to leave a legacy for your children that you may not otherwise been able to do.
I don’t like that sales people tend to push it for everyone or make it seem like it is a great “investment”. But life insurance can do some wonderful things that high-income good investing people tend to downplay to the general population. Unfortunately, the general population is generally not smart enough to think for themselves and they just believe what powerful people tell them to do.
You don’t think sales people tend to push it for everyone or make it sound like a great investment to potential purchasers? Check out this forum thread:
https://www.whitecoatinvestor.com/forums/topic/inappropriate-whole-life-policy-of-the-week/
I think you need to meet more agents and their clients. I would even go so far as to say that the vast majority of permanent life insurance policies sold are sold inappropriately.
And you do realize that less than 20% stay in force until death. You do understand that most people who are of lesser means pay monthly and get charged double digit finance charge instead of paying yearly and that they have the highest lapse rates (20% is the average)? You do realize they typically lapse early on and lose almost every dime invested?
I disagree. I have bought whole life insurance for my three children because my family has a history of disorders that make it hard to get insurance as an adult. Glad I did too. One of my son’s has Autism and maybe bi-polar and another has asthma and allergies severe enough to affect life insurance eligibility. The policies I have on them might not be huge amounts, but they are better than nothing and less then $10 a month each.
If it’s $10 a month, do whatever you want. Statistically, your kids are unlikely to benefit from that, but hey, spend $10 a month on whatever you like. Some people lose $10 a month in change.
Wow, you don’t know what you’re talking about. Their is a future insurability rider, it’s called a “guaranteed insurability rider”. You only by whole life from a Mutual company, no stock holders. Best way to purchase is $62,500 worth of insurance with a guaranteed insurability rider with a waiver of premium rider. This allows the child to purchase an additional $1,000,000 worth of life insurance. So lets say the child grows up with low functioning Autism, but has the insurance before being diagnosed. Not only is he or she insurable, but the waiver of premium means the insurance company pays for it. When diagnosed the policy ownership should be placed in a special needs trust. Now when the child grows up, and out lives the parents they still qualify for state and federal aid. Plus they have a bucket of money which can be utilized by the trustee to insure the receive the best medical care, and living standards. Roth IRA’s for children through a daddy clause? The child has to be a working 18 year old to qualify. then they would only qualify to put away $5000 a year. Well designed whole life policies from a mutual company is what helped Walt Disney build Disney World. 529 plans in some states are good, but with many pitfalls, #1 being taxes if the child doesn’t use it. 529 is the number in the tax code. I see clients taxable IRA’s all the time. Do not touch before age 59 1/2 or 10% penalty, plus pay tax on it. Must take out at age 70 1/2 or a 50% penalty time to pay more tax on it. Limitations on how much you can save for your own retirement. The government will tell you what their share will be. Instead of preaching what you know nothing about, tell me why doctors aren’t required to have prices for procedures publicly displayed for all patients to see?
Looks like you’re the one who doesn’t know what he’s talking about if you think a kid needs to be 18 before he can contribute to a Roth IRA.
You can also get to retirement money penalty free before age 59 1/2.
And RMDs are lower than generally recommended safe withdrawal rates, hardly a big deal for most retirees. In fact, they probably help people spend money they can safely spend in most cases.
I agree that docs should be forced to publicly display prices and I encourage you to start a blog about it.
But I still think buying life insurance on kids is bad, but less bad if you at least get a meaningful amount of future insurability with it. That is far more valuable than the actual insurance purchased. Too bad you’ve got to buy $62K of insurance in order to get even a million (which probably won’t be enough for most in 20 years thanks to inflation.)
The internet makes it too easy to NOT buy insurance or properly plan for life. Let other people take care of you.
If a child passes, put out a GoFundMe and get $ for funeral by sympathy or guilt.
If you get injured and can’t work or have another financial setback why have emergency savings, just hit up everyone you know for GoFundMe
Good luck coming up with more than $1-200K by GoFundMe.
Was Mike serious??
Let me offer another reason why it’s a bad idea to take out insurance on your child: it sends a horrible message to them about you once they discover what you’ve done.
I learned in my mid-20s (I’m now in my 40s) that my parents had taken out an insurance policy on me as a baby and at the time were still holding it, with my mother as named beneficiary and without my having had any prior knowledge of it. Mind you, they had never purchased policies on themselves to provide for me in case they had died.
This worsened an already strained relationship with them. How, exactly did they see me? As a profit center that needed to keep earning for them even if I perished? Because I grew up on a farm and was working from the time I was a small child, this idea isn’t as far-fetched as it might seem. And frankly, it stings.
If you want to show your child that you love them through life insurance, take out the policy on yourself to benefit them, not on them to benefit yourself.
Wow. That’s kind of brutal!
I couldn’t disagree more with this article. In life insurance you can actually purchase paid up additions inside of the policy so at different ages you can buy more insurance on the child without going through underwriting.
Typically you’re the healthiest you’ll ever be as a child. Protecting your insurability is important. And life insurance doesn’t have to be reported as an asset so a kid can qualify for more financial aid bc of it. Also when the market goes down you don’t want to use an asset like a 529 you would want the market to recover. And also who’s to say that the child would even want to go to college. If they don’t then the 529 was a waste of money unless you transfer it to a relative. With life insurance you’re guaranteed to use it and it won’t lose its value
Buy life insurance when someone depends on your income.
Protecting insurability is tricky, and might be worthwhile at a low price, but given the usual price (buy a crummy whole life policy for a tiny amount of protected insurability) it isn’t worth it.
The FAFSA issue doesn’t matter for my readers, who won’t qualify for aid anyway: https://www.whitecoatinvestor.com/why-most-doctors-shouldnt-bother-with-financial-aid-planning/
And if your kid doesn’t go to college, you can change the 529 beneficiary to their siblings, their kids, or even yourself. Or just pay the penalty and pull the money out.
LOL! Thank God I found this article so I didn’t waste $1/month on the $10,000 policy for my kids. I might actually have to skip 1 k-cup of coffee per month..
[Ad hominem attack deleted.]
I realize this is old but after reading through the comments I just wanted to add that State Farm offers the guaranteed insurability ride for juvenile policies. The option allows for the purchase of additional life insurance with no proof of insurability at set shes and life events. The amount available to purchase depends on the initial amount purchased and can be no more than that amount at each option age or event. So if I buy a policy with a death benefit of 100K then I can purchase up to 100K at each option age or event.
Like others have said, no parent buys life insurance with the expectation of using it. They buy it because they cannot tell what the future holds for their child and want to make sure their child is covered in the event of a damning medical diagnosis. Most people do not depend on their children for income so there is no income to be replaced in the event your child passes early. But the cost of a funeral can be a burden to some even if they have 10K in savings. A funeral to include the cemetery plot, opening and closing of the grave, casket, embalming, and funeral home services will most likely wipe out a 10K savings account. If it does then you have nothing to fall back on if you need to miss work for an extended period of time to grieve. Nor do you have anything in the event you have other unexpected expenses pop up during that time. A life insurance policy would be be beneficial in that sense.
My recommendation to anyone considering life insurance for themselves or someone else is to give a hard look at a 20 pay whole life policy. You only pay on it for 20 years at which point it is paid for in full and not a single penny more will be due. Its whole life so of course it builds a cash value but because your premiums are a bit higher than a standard whole life because you’re paying on it for a much shorter period of time the cash value builds at a much faster rate. Yes it is eligible for dividends and no they are not guaranteed but that’s why you choose a company with an A++ rating, so you know your odds of earning dividends every year are pretty great. You can choose how you want those dividends such as in a cash payment every year, or you can let them accumulate at interest, you can let them purchase paid up additions or you can use them to pay as much of your annual premium as they’ll cover.
Anyway, just my two cents. While it may not be the best investment vehicle in regards to the return it is the safest as it’s a guaranteed rate of return with whole life. Plus where can you go and pay a months worth of premiums and be able to cash in on the policy benefits in the event the insured dies? You get the full guaranteed death benefit as soon as coverage is bound and while I would hope that no one would ever find themselves in the situation of cashing in on a policy on their child the simple fact that you can after only paying one months worth of policy premiums is a pretty good deal.
Thanks for the info on state farm. How many times can you add $100K between 0 and 25-30 when you probably start actually needing the insurance?
Also, the guarantee is only as good as the guarantor. Just throwing out “guaranteed” doesn’t mean much.
I disagree and think you have a hazy view on how life insurance fits in financially. Indexed Life policies are great for children due to low premiums, higher face amounts and a death benefit. Chances are your children will grow up, get married and have kids of their own. By planning for this and having the foresight to get a policy for your child, you lock in permanent insurance and have created a 2-1 type of investment (cash value and death benefit).
You may have a point with not getting a whole life policy but I feel you are naïve to the value life insurance provides.
IULs are only great for those who sell them. I know lots of people who were naive to the value life insurance provides, but once they were educated they agreed with me that it’s a product made to be sold, not bought. Here’s a sampling:
https://www.whitecoatinvestor.com/forums/topic/inappropriate-whole-life-policy-of-the-week/
Not if IUL’s are funded appropriately and you’re working with an advisor who actually cares about you and not commissions. Your example was for a couple who purchased whole life policies not indexed. If they funded that appropriately in the beginning, they would be singing a different tune right now.
What do you do for a living Brandon?
I’m in mortgage banking.
Let’s talk about your IULs. What year did you buy them, what is the annual premium, and what is the current surrender value?
After reviewing a sampling of these posts/comments, I agree there is Isn’t a real need for life insurance on juveniles of affluent families. If you have the income to exercise your financial literacy and mastery, you dont worry about obscure what-ifs, you just invest and build wealth. Save it for those poor uneducated people who are easily swayed by the media into thinking life insurance is some panacea to accumulating wealth. Real wealth isn’t a small lump-sum of death denefit, its a mindset, a discipline and often a family legacy that takes time and effort to build and maintain.
I should think twice when I do that
Regarding your statement in #1 “I have no doubt in my mind that if, heaven forbid, one of my children died, that my household expenses would go DOWN, not up.”
Unfortunately, the actual experience of having your child die unexpectedly would most likely result in your life being turned upside down. So even if you don’t depend on your child for income — most couples get divorced after the death of a child, you will probably not be going back to work that fast – you may not be in the right frame of mind to work at all. I lost my child, then lost my job, then lost my house.
I wouldn’t have wanted a million dollar policy to cash in on, but I could have given that million to St. Jude to fight childhood cancer, for example. And even a $10k policy would have paid for the funeral – -but actually No – you don’t get the money that quickly. Funeral homes want the money up front for a burial 1 – 2 days after death. Nice if you can come up with $10k with no notice, or frantically try to borrow from family and friends (if you can imagine having that conversation, and what it’s like when they say they can’t help you). A survey I heard last week reported that a majority of Americans said they couldn’t even come up with $400 for an emergency expense to even fix their car. Death benefits can take 30-60 days to pay out. At least if you had a policy, somebody might lend you the money and you could reimburse them when the policy pays. And then still the insurance company might find a reason not to pay, so it isn’t guaranteed.
I would hope my audience can come up with $10K with little notice given that most of them make $15-50K a month. But if this is a realistic concern for you, then sure, buy a little $10K policy on your kid.
There is a chance that my son may have the signs and symptoms of fascioscapulohumeral muscular dystrophy. He has not been diagnosed. The wife and I are thinking ahead and considering getting a life insurance policy for him, for his future family; obviously not for us. We are both physicians so are in one of those, know-a-little-too-much situations where we are worried he might actually have the condition. I know there are 2-3 year exclusionary periods for these things so we are considering getting a policy for him now then move forward with testing later on. Sadly there is no cure or treatment, so it is not as though we are delaying treatment. We are worried sick but thinking ahead. We are fine financially, all because of WCI. In this particular case, is the insurance worth it? What even are the options for insurance?
Dual physician family? You can certainly afford to do it so if it makes you feel better, why not? If it turns out he doesn’t have it, you can dump it in a few years. Just focus on getting as much guaranteed as possible for as little premium as possible. i.e. as someone in the comments above noted try to guarantee at least $1M insurability. A $100K policy just isn’t going to do much.
The biggest thing with whole life is knowing what to do with it and structuring it properly.
You can structure a policy with a mutual, divided paying company and overfund the policy which then buys additional life insurance which increases the dividends and cash value over time.
Not many companies do this or advertise it because it’s significantly less commissions for the agent.
I have a guaranteed internal rate of 3.5% and after you calculate the divided over time it’s around 6%.
It has a tremendous amount of flexibility in that if you are an entrepreneur like myself you can take policy loans against the policy to finance a business. The cash value is kept in the policy and continues to grow even with outstanding policy loans.
You can also take policy loans as future tax free income during retirement.
In addition, by buying multiple whole life policies on insurable interests (like children) you can put all the policies together into a life insurance trust and over time create a family bank that future generations can use for almost anything. While life insurance is a long play and you need to do your research on it. I like it for the flexibility the consistency and the guarantees. It can be a great conservative part of anyone’s portfolio.
Read “what would the Rockefeller’s do” by Garrett Gunderson.
I disagree that’s the “biggest thing” with whole life and I disagree with most of Garrett Gunderson advocates.
The biggest thing with whole life is to realize you almost surely don’t need it and probably won’t want it once you realize how it works. You’ve likely got a better use for your money. It’s a product that is designed to be sold, not bought.
However, if you are in that tiny minority who needs/wants a policy after learning how it works, I agree it is best to structure the policy properly for what you wish to do with it.
Hi Jim. Thank you for everything, including the autographed book you sent after WCICON2020! Sorry I wasn’t able to go but I enjoyed the livestream. Part of the reason for not attending was due to my wife and I going to a lot of appointments after learning of our unborn son’s diagnosis of hypoplastic left heart syndrome. I’m hesitant to even consider any insurance for the many reasons pointed out above. I’m not even sure I can purchase a policy on an unborn child. We of course want to make the best decision for our family and for his future family but before I even speak to an agent, what would you advise?
I’m sorry to hear about this.
I think you’re right that you can’t buy it on an unborn child. I also suspect you will have a hard time buying it on a child with a serious heart condition. I’m sorry.
I recently bought a 500k varible universal life 4 pay on my grandson….5650 a year for 4 years….he’s covered for his life time…..and his kids, my great grandkids, will reap the benefits when he’s old and gone…….the cash value is in a mutual fund…….projections look real good, millions down the road……I’ll be happy if someday it’ll be worth 1/4 of what the projections say…….I’ve invested a lot for him since birth……drips, for instance i bought him 114 shares of microsoft, , brokerage account it holds 50 shares of facebook, 20 shares of NVDA……and various mutual finds……and other securities………..My moto is DO SOMETHING……..i did the same for my 2 kids…..Ira”s, brokerage accounts…ect…………..I wish you all the best….Keep investing!!!
I agree that something is better than nothing. Hope it works out well for him.
I like the fact that you’re playing devil’s advocate; however, to tell someone that it’s not needed that isn’t wealthy is irresponsible. Anything could happen. It’s the game of life. I know people that died suddenly that either didn’t have enough insurance or not at all. And guess what?, their friends and families were struggling to get them buried. They had GoFundMe accounts, having bake sales, and dinner plates. How is that fair to them? A children’s policy is just a safeguard for the parent as financial protection against a catastrophic loss for an unforeseen event. There’s real purpose to insurance , it’s just people do not really understand how it works. Yes, life insurance isn’t for everybody and people actually have to qualify for the plans, not just purchase it. Yes, I am an insurance agent; I’m an agent with a heart, has great ethics and actually cares about people. To your readers, do what is best for you and yours. If you have the funds in case something terrible happens, then don’t get it. If you don’t have the funds readily available, then get it. You won’t be sorry if something was to happen. Plus, some carriers will keep your children covered until well into their adulthood. The choice is yours, Have a beautiful day!
You sell insurance for a living. Your opinion on this matter is less than impartial. It’s like asking a barber if you need a haircut.
I write a blog for high income earners, most of who, if they will follow my advice, will have a 7 figure net worth at some point in their 40s. $10K to bury their kid is a trivial expense to them. It’s not insurance they need. While a tragedy, the death of one of their children is not a financial catastrophe and does not need to be insured against.