As an adult, you understand the importance of purchasing a whole life insurance policy. With this, you can guarantee that your beneficiary receives a death benefit payout when you pass on.
While you focus on buying the right policy for yourself (and maybe even your spouse), there is something else to think about: your children.
While many companies, such as Gerber Life, have offered this type of coverage for many years, it’s slowly becoming more and more common.
Is it really a good idea to get a whole life insurance for a kid?
In this article we find out if whole life is for you, and we will go over what is the best whole life insurance for kids.
There are many benefits of giving a whole life insurance policy to a child, such as the ability to show him or her how important it is to be financially responsible. With this approach, your child will grow up knowing that life insurance should be a big part of their overall financial plan.
As a parent, you realize how important it is to help your child reach for the stars. However, you know that this is easier said than done.
If you want to help your child reach his or her financial goals, don’t delay in doing so. The moment your child comes into the world is the moment you should consider the benefits of buying him or her a whole life insurance policy.
For more information on whole life check out: Whole Life Insurance For Dummies
Some additional benefits of this type of coverage include:
- Cash value which acts like a savings account
- Cash value increases every year
- Access to cash value for any purpose
- A guaranteed amount of life insurance coverage, with no concerns that this will change in the future
- Level premiums that never increase
All of these features come standard on most whole life policies.
Use The Cash Value
As your child ages, there are times when he or she may want to access the cash value of the policy. This will not impact the death benefit payout, but gives the child the ability to use the money for things such as:
- College tuition and other education related expenses
- Paying for a wedding or other big life event
- Buying their first home
- Starting a business
- Supplementing income in retirement
All of this sounds like it’s many years away, and you’re definitely right. However, you need to start planning for the future today. If you don’t, you’re leaving it up to your child to deal with all of these expenses on their own.
Why do this when you can purchase a whole life insurance today that can provide many benefits in the future?
Whole Life For A Kid: The Costs & Cash Values
So let’s not waste any more time and let’s see an example of a whole life for a kid. Here is one example from an A+ rated company, so you can see how a good whole life insurance will grow for a kid over the years. The next example is for a new born female.
The whole life has a contribution of $200/mo for 20 years. After that period the premiums stop, and the policy remains.
|Year||Age||Cumulative Contract Premium||Total Cash Value||Internal Rate of Return (%)||Total Death Benefit||IRR (%) Death Benefit||Total Paid-Up Insurance||Insurance Monthly Life Income|
As you can see there is significant growth over the years. In addition the cash value can be used for any purpose, at any time, so it gives tremendous flexibility.
Compare Your Options
Just the same as buying a whole life insurance policy for yourself, there is more than one company that you can do business with.
While Gerber’s whole life is the leader in this space, it is definitely not the best whole life insurance for kids. Other insurers, such as Massachusetts Mutual Life Insurance Company are known for selling high quality whole life insurance policies for kids. In reality, there are multiple companies that have life insurance for children.
When comparing options, focus on details such as:
- Cost of coverage
- Death benefit
- Cash value growth
Know the Restrictions
Some of the most common restrictions associated with whole life insurance coverage for a child include:
- The policy may be limited to a percentage of coverage held on a parent.
- The child must be a certain age, such as 15 days old.
- If your child already has a health condition, you may not be able to get a whole life on him/her.
- The parent is required to signoff on all transactions, such as cash value distributions.
If your child is around 5 years away from going to college, then stay away from a whole life insurance.
The whole life will not build enough cash value to be useful. Unless, you are not using it for college purposes, and more like a long term savings account.
3 Tips For Whole Life Insurance For Children
There are a few features that you want to make sure your policy has. These will benefit your kids in the long run.
1. Get A Guaranteed Insurability Rider
Many companies have different names for this rider. However, what this rider will give your kid is the ability to get more insurance with ever having to do a medical. This can be critical if your child gets a health condition. In addition, the cost of the rider is not significant. Follow this to learn more about life insurance riders.
2. You Will Be Able To Transfer The Whole Life To Your Child
If you do not use the cash value for college expenses, then keep the policy. Eventually in the future you will be able to make your child the owner of their own policy, and hopefully they are responsible enough to use the cash and the death benefit correctly. This way you will also be protecting your grand kids.
3. You Can Stop Paying In 10 Years
Most parents will not want to pay for the whole life for their kids forever. You are able to design a whole life to pay for only 10 years! This is a limited pay whole life.
This can be a fantastic way to save cash value very quickly, while knowing how much money you will have to put away.
A growing number of parents have come to realize that whole life insurance for their child makes good sense. It is a fantastic way to save cash that your child will be able to use for their future.
If nothing else, you should consider the benefits of buying this type of policy. Even if you neglected to do this shortly after your child was born, you still have time.
Review the companies that sell this type of coverage, focus on the one that is best, and make a decision that will benefit you and your child now and in the future.