Before we start this post, let's talk about the different types of life insurance.
The quick explanation
There are basically 2 types of life insurance. Term and permanent. There may be many different products for each type, but there are only really 2 different types.
Term - Term insurance is a policy with a set duration limit on the coverage period. Once the policy is expired, it is up to the policy owner to decide whether to renew the term life insurance policy or to let the coverage end. Coverage is usually sold in terms of 10, 15, 20, 25 and 30 year policies. The longer the term, the more expensive the premium (payment). The premium payment is usually a set amount and does not change year to year. Since term has an expiration date, it is many times cheaper than permanent insurance.
Permanent - A type of life insurance policy that does not expire. Permanent insurance combines a death benefit with a portion that has cash value. Most permanent insurance products give the policy holder the ability to take loans from the cash value. Permanent life insurance often goes by the name "whole life insurance." Permanent life insurance is guaranteed to pay out, unlike term, however, it is more expensive.
Why Permanent Life Insurance for Children Makes Sense
1. Protection for Life - There are no "if, ands or buts" about coverage. The policy cannot be cancelled, reduced or revoked as long as the premiums are paid, and fraud was not involved.
2. Level Premiums - The rate you pay (called premium) will stay the same and never increase.
3. Cash Value - A portion of your premium builds cash value, which can be borrowed against at a later time if you wish.
4. Guaranteed Death Benefit - This is the face amount of your policy that will be paid to your child's beneficiary. It could be more or less depending on dividends or any loans that may be outstanding at the time.
5. Accelerated Death Benefit - This is a very important feature of many whole life policies. This benefit enables the policy holder to receive cash advances against the death benefit in the case of the insured is diagnosed with a terminal/chronic illness. The amount of the advance will be dependent on the policy guidelines. Usually it is around
6. It is inexpensive for children - Life insurance, in general, is very inexpensive for children. Why? Odds are good that your child will live a full life.
7. Option to pay in full - On most whole life policies, you have the option to pay off the policy over the course of a few years. The policy will then be paid in full. No more premium payments are required and your policy will be good for life.
8. Covers debt left behind - If you are like most parents, you help your child get through college. If you were to cosign for a student loan for your child, you will be held liable for the debt if you child passes suddenly.
9. Covered before uninsurable - How many tragic stories have you heard about a young adult being diagnosed with a fatal or life long incurable disease? Once that diagnosis is made, life insurance becomes either too expensive or not obtainable.
10. No medical examination required - For many insurance companies, a paramedical exam is not required to obtain a life insurance policy on a child. The only medical requirement is to answer some health questions and release their medical records to the underwriter.
My daughter is a smart and healthy 14 year old. She does great in school and I could not be more proud of her. Ever since she was young, I have done my very best to raise her right and teach most of the lessons in life that I had to learn the hard way. Along with my wife, she is the love of my life.
Being in the insurance business, agents understand the importance of protecting our legacies. But what about my daughter's legacy? Is it too soon to think about life insurance? Am I too late? Here is what I thought about and the conclusion I came to.
There is no better gift of love than to financially protect your child's legacy while they are young. I recently read different stories about young adults, in college, who pass away before their time or they get some uninsurable disease. They carried a lot of financial burden, not only from the cost of college, but also cost of living. It is really sad. We, as parents, try to do what is best for our children. It is our goal to raise them right and to give them everything they need to start adulthood and prosper as growing adults. We try to give them everything, so why not the protection of life insurance?
Bad Rap - Unfortunately, you will hear "financial experts" talk bad about permanent insurance. They will tell you that whole life is "ridden with fees." That is not exactly true. Just with any business, there are good companies and bad companies. Some companies have good products and some are not very good at all. It is true that whole life insurance is more expensive than term insurance, but for good reason. It is permanent, the premium rates never change and it is guaranteed to pay out upon death.
My experience/decision - I decided to purchase a $100,000 whole life policy for my daughter. I plan to give her ownership of the policy later into her adulthood. I purchased what is known as a 10-pay policy. This means I will pay on this policy for 10 years and then it is paid in full. No more premiums to pay. I like the idea knowing that I will not have to pay for it forever. The cost? $1289.00 a year or roughly $107.00 a month. Do you think that is a lot of money? Consider this... Over 10 years, I will have spent $12,890 in premium. In return, my daughter's beneficiaries will receive at least $100,000. However, whole life policies do grow in value, so they can expect a much higher payout.
Peace of mind - I rest easy knowing that my daughter's future legacy is well protected. Will $100,000 be enough when she has her own family? Probably not. However, until she actually has her own family, it will be enough. I love my daughter and I want to take care her the best I can. Until she gets older and can understand the need and benefit of life insurance, I will take care of her future legacy for now.
Got Questions? - If you have questions on how permanent insurance can benefit your child or want to know more about your options, please let me know. I would be more than happy to talk to you about it. Click the link below for a no-cost/no obligation quote or call me at (469) 630-1037.
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