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Author Topic: Life Insurance Question (now with follow up q's)
Valentine014
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We recently had a baby and I was interested in getting a small life insurance policy to off set the costs of a funeral and the time off from work that would occur if our baby were to die. Morbid, I know, but those sort of unexpected expenses could really put us in a bad place financially. Not to mention, of course, how out of minds with grief we would be. My agent at State Farm presented us with three options:

quote:
We have 3 policies that would be great for you kids. All three policies have a benefit of $25,000. (which is our smallest amount) Iíll try to explain the differences of the three the best I can over email and if I have confused you I can call you better explain them.

1.) The first is a 25K Whole Life policy. The premium will stay the same for their entire life and benefit will be at least 25K guaranteed. It builds cash value that can increase the benefit over time. You can borrow from this as well. Everything is guaranteed with this policy as long as you pay the premium. This one runs 19.02 a month. It also comes with a guaranteed insurability option meaning that they could add coverage to it at scheduled times without any underwriting which is important especially if their health makes them uninsurable.

2.) The second is a 25K Universal Life policy. The monthly premium is flexible meaning you can decide what you want to pay into it every month. Itís basically a one year term policy with an account value. The cost of insurance for a 0 year old is hardly nothing so the idea behind it is you overpay for the insurance in the beginning to build up an account value that we pay interest on so that as your child gets older and the cost of insurance is more than what you are paying every month the account value is high enough to pay the additional cost of insurance and it continues to grow. The middle of the road premium is $15.74 a month it can be less or a little bit more depending on what you decide but $15.74 is a good starting point for it. I know this one is a bit more confusing but is a good policy if funded and managed properly.

3.) The last one is a 25K 15 pay life policy. This is what we did for our twin boys. This is basically like the whole life policy above except you only pay the premium for 15 years and then it is completely paid off. Even if your child cashed it out in 25 years for a down payment on the house they would still have a 25K death benefit. This policy also has the guaranteed insurability option on it and the monthly premium is $26.95. The annual premium is $309.75. The amount paid out depends how long the child waited to cash it out. I attached a copy of the illustration (sorry, but I can't copy and paste that) and if you scroll down to page 4 it will show you how much cash value(surrender value) the policy would have in certain years. There are 2 numbers to look at one is the guaranteed cash value on the left of the illustration and the other one they are showing is an illustrated value if we pay dividends every year like we currently are doing the cash value is greater than what the guaranteed amount is. We pay interest on the cash value as well as the dividends so you can see the longer they leave the money in it the more it grows. Like I said once it has been paid up completely after 15 years and they withdrew all of the cash value in the policy they would still have the 25K benefit for the rest of their life with nothing more to ever pay.

If they withdrew money out of the policy it would not be paid back. If they wanted to put the money back they could take a loan out on the policy then that money could be paid back but it wouldnít have to pay it back.

The rates would not change they are guaranteed to stay the same for 15 years until the policy is paid up then nothing else will ever be owed on the policy. Also I ran this for a male which the annual premium is $309.75.

From my limited knowledge of insurance, I know that a whole life policy is usually not the right policy for many, at least for adults. Out of these three policies, which looks the best? Are any a good option? Anyone have any other recommendations? I am liking the looks of the last option, but my husband wanted to get some other opinions. Do you have a policy on your kids?

Thanks in advance for any advice!

[ December 09, 2010, 03:03 PM: Message edited by: Valentine014 ]

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ambyr
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quote:
I was interested in getting a small life insurance policy to off set the costs of a funeral and the time off from work that would occur if our baby were to die.
If this is what you told your insurance agent your goal was, and he came back with a list of options that didn't include a single term life policy, I would get a different insurance agent. Quickly. You're asking for short-term help with potential emergency expenses, and he's offering long-term investment vehicles. The kindest interpretation is that he's not very good at listening to you.
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katharina
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You want a term life insurance policy on a baby. None of the three are that.

All three options are life insurance as an investment vehicle, which is not what you are looking for. You can invest more profitably in other ways.

Term life insurance

Term vs. whole

From the Wikipedia article:
quote:
One study placed the percentage as low as 1% of policies paying a benefit. The low payout likelihood allows term insurance to be relatively inexpensive. The low payout percentage is a combination of there being a low likelihood (in the aggregate) of a random, healthy person dying within a short period of time. Because of the low likelihood of an insurer having to pay a death benefit, term insurance seems better when considered in terms of coverage per premium dollar basis - by a factor of up to 10.

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Stephan
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NO! None of them.

I sold life insurance for five years. It is financially irresponsible to take life insurance out on a baby rather than increasing your own life insurance.

WHOLE LIFE POLICIES PAY THE HIGHEST COMMISSIONS TO INSURANCE AGENTS. This is why I was pressured by my boss to sell them.

Take that $20+ a month and put it in your retirement, their college education funds, or life insurance for yourselves.

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katharina
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Hmm...looking at State Farm's term life insurance policies, it is possible they won't do term life insurance policies on children. That's possibly why you didn't get a quote for what you were asking for.

http://www.statefarm.com/insurance/life_annuity/life/term/termtabl.asp

Do you or your husband have term life insurance now? It might be cheaper to get a rider for the kid on a parent's current policy. If neither of you currently have life insurance, I recommend getting some for both as quickly as possible. That's more important than the one for the baby.

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TomDavidson
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*nod* I have a rider on my term policy for both my children. It costs me an additional 40 cents a month, and would pay $25K were either of them to die.
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Stephan
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Term for most companies start at 18.

There is just no insurable interest. Life insurance protects against financial devastation caused by death. This is rarely the case for children.

If you are upper class, you can afford any child's funeral costs anyways.

If you are middle class you are far better off with an emergency fund.

If you are lower class you probably can't afford the insurance anyways.

If a child has a terminal illness, health insurance is what is needed. Emergency funds will cover the $5,000 - $10,000 in case of sudden or accidental death.

It is not a good investment, especially with interest rates the way they are today.

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Stephan
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quote:
Originally posted by TomDavidson:
*nod* I have a rider on my term policy for both my children. It costs me an additional 40 cents a month, and would pay $25K were either of them to die.

That is the best way of doing it if it is something you want to do. I sold that option fairly often.
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Flying Fish
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First: run away from that agent with all due haste. He views you as a sucker, and does not have your interests at heart.

I have the option(s) of getting term insurance through work, both on me, my spouse, and my children. For about two or three dollars a year I have $15,000 coverage for any child to pass away, which I imagine would cover funeral expenses, time off, etc.

Remember, you're not trying to replace income that child brings in, and insurance is a crappy vehicle for investment, which is why agents get such high commissions on it.

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Flying Fish
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And by the way.....

1)Congratulations on having a baby.

2)Kudos for being foresighted and responsible.

3)Ever heard of Dave Ramsey? He's on the radio (and web and tv and has published books). Also check out Clark Howard. Check them out.

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Valentine014
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Thank you, all, for the advice! It appears that what I have been told about whole life policies for adults also applies to children (not usually the best option.

Fish: 1.) Thank you!! 2.) Thank you!! 3.) I'm more of a Suze Orman kind of gal, but thank you!

My husband does have a life insurance policy on us through his work. Do those usually transfer after leaving the job? Are policies not attached to a place of employment a better idea?

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CT
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[written before the post just above]
Oh, all of this. All of the above. Great advice, guys.

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Stephan
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quote:
Originally posted by Valentine014:
Thank you, all, for the advice! It appears that what I have been told about whole life policies for adults also applies to children (not usually the best option.

Fish: 1.) Thank you!! 2.) Thank you!! 3.) I'm more of a Suze Orman kind of gal, but thank you!

My husband does have a life insurance policy on us through his work. Do those usually transfer after leaving the job? Are policies not attached to a place of employment a better idea?

Have him find out from whoever does the benefits at his workplace if the life insurance is portable. Usually they are if they are through a seperate company.
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Stephan
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Are you stay at home? You should have life insurance yourself if you don't. Could he afford day care if something happened to you?
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Valentine014
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quote:
Originally posted by Stephan:
Are you stay at home? You should have life insurance yourself if you don't. Could he afford day care if something happened to you?

I am not a stay at home mom. I just have the small policy he has on me through work. He could afford daycare if I were to die.
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katharina
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I'm about 95% sure you can add BabyValentine for less than a dollar a month to his insurance.
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Valentine014
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I would say he is BabyXavier. Hoping for BabyValentine next time! [Wink]
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Kwea
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well, congrats!
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