Each day this week, I will post a question that I have been specifically asked and my (paraphrased) response. Feel free to comment and share.
QUESTION (from a 48-year old married man, with 2 children):
My kids are 11 and 2. They don’t need insurance. Why would I do that? I don’t even want to think about it.
QUICK ANSWER:
Life insurance for children is not so much for today, but for tomorrow. It is part of planning for your child’s (as well as your grandchildren’s) financial future.
MY RESPONSE:
I hear you. I also have a 2-year old daughter who, of course, is the most important thing in the world to me. My wife and I did not insure our daughter because we are afraid something will happen to her – quite the opposite – we insured her because we expect her to grow up and do all of the normal things in life (ie. find a partner; have kids; buy a home). Are these events “normal”? Well ask yourself – are you shocked when you hear that someone is getting married or moving in with their mate? Are you amazed if you hear that someone is pregnant? Are you in disbelief if you hear that someone is purchasing their first home? None of these things are considered to be unusual. So of course, we are expecting our toddler to grow up and partake in these experiences, just like we did. We are planning for her future.
All adults need insurance, and it is much cheaper to buy her plan now, than it would be 30 years from now. Also, the type of plan we purchased is called “whole life, participating, 20-pay”. What does this mean? “Whole life” means that she is insured for her entire life. “Participating” means that we are sharing in the financial growth of the insurance company. A portion of the monthly premium is being invested, which contributes to a cash value that accumulates within the plan. The longer the plan is in place, the more the cash value grows. You can withdraw some of the funds or take a loan, or use the cash value as collateral for a low interest bank loan. The life insurance benefit (payout upon death) also grows, as the plan ages. Finally, “20-pay” means that we pay premiums only for the first 20 years. After 20 years, no premiums are charged but the plan remains active, and the cash value and life benefit both continue to grow.
Right now, my wife and I are the plan owners and beneficiaries; and our daughter is the life insured. When she turns, say 30 or 35 for example, and she is engaged in adult activities, we can transfer the ownership to her. At that point, she would be the plan owner and remain as the life insured. She could then change the beneficiary to her partner, or child(ren) or whomever.
I know that was a lengthy explanation, but it is up to people like me to try to introduce or reinforce the fact that life insurance serves multiple purposes. You are not purchasing it because you think someone is going to die soon. You are simply making a wise financial decision that will benefit your children and their children.