photo credit: Lemons Family, Stone Mountain, GA.
The decision to purchase life insurance is a personal one for each individual and each family. Life insurance is an affordable way to cover the losses your family suffers in the event of an untimely and unexpected death. We could list various reasons not to own a life insurance policy for yourself, or for your children, but today I want to highlight the reasons why my clients have made this decision and why I have a life insurance policy for my daughter.
Covering Funeral Expenses
This article states that the average funeral cost is between $8,000-$10,000. Depending on where you live, and what final arrangements are made by your family, it can cost thousands of dollars more. For pennies on the dollar, leveraging a very small portion of your income today, you can create a reimbursement, of sorts, for the large financial outlay that your family will have to come up with to handle your final expenses. Do you really want your friends and family to rely on a Go Fund Me crowdfunding page to deal with your final affairs? How much time would your work allow you to be off to grieve the death of your child? How much of your income would they pay you while you were gone?
I once heard, that when a man loses his wife, he is a widower. When a woman loses a husband, she is a widow. When a child loses a parent, they become an orphan. There is no word in the English language for a person who loses a child. And there's good reason for this because it is the greatest loss that one could ever know.
Far too often, people reach out to me that want to purchase a life insurance policy and due to their medical history are uninsurable. The key to purchasing an individual life insurance policy is buying it while you are young and healthy. You can avoid the unfortunate situation of not being able to get approved by purchasing a policy for your children now before any averse medical history arises. After someone is diagnosed with certain conditions, their cost of insurance can be greatly increased and the only way around this is to have something in place beforehand. If your family has a history of medical conditions such as diabetes, early breast cancer, etc. it might make sense to insure your child.
Locking In A Low Rate
The major advantage to purchasing a policy while you're young is being able to lock in the price from a low age. Life insurance policies for minors are whole life policies that typically have a level premium, meaning the premium stays the same and never goes up. It just makes sense to have a rate at a lower age if you can afford to keep up with the cost of the policy.
There are many different types of policies and it is recommended to consult with an Insurance Professional or Financial Advisor because they specialize in helping people with life insurance products. Share your goals with them, your budget, and needs. If you have no experience, it can be beneficial to talk to a couple different people to compare the differences in what they suggest that fits your situation. It also pays to find someone who is an independent broker because they will have relationships with a number of insurance companies instead of only one, providing you a greater selection of options.
Building Cash Value
There are many ways to save money for your children. 529 college savings plans, custodial accounts, life insurance. Where do you start? It can be tough to predict the future and working with an experienced financial planner can help you narrow down the best options for your family. One of the benefits of having a whole life policy in place for your children is because you are building cash value in the policy over time through the compounding of dividends. Unlike the first two options, Cash Value Life Insurance is also not reportable on the FAFSA form if your child will be applying for student loans.
When your child reaches adulthood their policy will have accumulated cash value and this money can be used to pay bills, purchase a home, a vehicle, or for whatever reason they wish. Pulling cash out of the policy will reduce the death benefit accordingly, however making the decision to purchase a policy while they are young can be a big advantage later.
No Market Volatility
Although we're in a low interest rate environment currently, there are still great mutual companies such as Guardian that are paying rates well over 5% in annual dividends to the policy holders. Where would you rather park your spare cash, in the bank with little to no interest? December 2020, Guardian declared their 2021 dividend rate for policyholders at 5.65%! Investments can be volatile and come with inherent risk. A great benefit of putting money into a high-dividend paying whole life policy is sleeping at night knowing your money and cash value will never go down. In fact, 5.65% is very competitive with the annual returns one would expect on a conservative investment account, but with zero market risk in a whole life policy.
I became a Life Insurance Professional back in 2007; I believe in life insurance 100%. When my youngest daughter was a baby I purchased a small whole life policy for her for $20/mo that came with $25,000 worth of coverage. I saw that as a good bet in case something happened. On top of the added expense of a child, I didn't want to have to go into my retirement savings or have to pull from other assets to pay final expenses, should something unexpected occur. When she was 6 years old, I replaced her initial policy with a much better one. For $40/mo she now has a $100,000 whole life policy that credits a 5.2% annual dividend to her cash value. For double the price I purchased a new policy with 4x the coverage. She has her excellent health and low rate locked in for life and later on if she needs to take money out, she can. She already has a 529, and a custodial account, but life insurance is a major pillar for her future financial planning.
Today I helped my cousin in Chicago protect the lives of her 3 daughters with whole life policies. Their ages are 17, 11, and 9, years old. We discussed all of her financial goals last week and putting the policies in place for her daughters is just one of the various pieces of the financial plan we are working together on for her family. The most important thing I wanted to highlight for her is making a decision that will be affordable for the family and also solve to achieve her goals.
See my previous article that covers the importance of having a term life insurance policy in place. I will continue to educate on various types of insurance policies with personal and relatable stories. I hope I have presented you with valuable ideas to consider and should you need any help or have any questions for yourself or your family, I'd be happy to walk you through everything and make the process of selecting the appropriate insurance policy simple and convenient for you.
John Hall is a Financial Advisor and Life Insurance Agent at Americana Financial Group. This material is for educational purposes only. If you have questions about what insurance plan is right for you, or to receive a quote for life insurance, contact: email@example.com