Shoud I cancel my children's whole life insurance?

Hi, I just discovered this site last night and have been highly educated thus far. I am trying to clean up a mess caused by my husband working with a local financial planner. I am now to the whole life insurance policies we have on my three children - ages 11, 9 and 4. We have had them for each since they were little and they range from 130-180 a year in premiums. Shoud I just cancel these as I now know it is silly to have these for kids. I would rather invest the monthly premiums into a college savings. But after having one for almost 11 years, what to do?
thanks!

Ah...one of my pet peeves!

Many parents want are eager to start something for their children when they are young and agents are quick to the rescue with child policies. Understand that they are not evil, they are just inefficient for savings purposes. If the original purpose was to give a gift of permanent insurance and guaranteed insurability to your children, then they were perfectly suitable solutions and your advisor should be commended. For pure death benefit though, children can often be named on employer group insurance or a rider on a parent's personal insurance policy for around 50 cents a month.

The rub, with me anyway, is that they are often sold for possible college funding, but the reality is that they will amount to next to nothing for this purpose. It is highly likely that you will merely break even with your premiums paid by the time your child is ready to go to college. This means that after 20 years of contributions, your actual purchasing power will be cut in half due to the effects of inflation!

Assuming all of your children are healthy, and an unfortunate event will not cause you financial hardship, you could surrender the policies and open up UTMA accounts for your children. If any of your children have a chronic condition or a predisposition for one, keep them. You don't need to worry about the ill effects of the UTMA on financial aid yet (20% penalty against), as there are remedies for this later. I prefer UTMAs at this stage over a 529 because the taxation will most likely be 0 each year, but the cost basis will still increase each year. An UTMA using mutual funds or stocks allows you more choices for investing, where a 529 is primarily category-based mutual funds. Also, the UTMA can be used for ANY purpose that benefits the child, not just qualified education expenses that a 529 is limited to. When it comes to apply for financial aid, the UTMA can be moved into a 529 to protect the assets from FAFSA.

Now the tricky part...you need to continue to fund the UTMAs as if they were the mandatory premiums for the policies. If you don't, you have made a foolish financial move. It will be very easy to skip a year or two...or ten of UTMA funding if money seems tight. But at least with the polcies, you will be obligated to put the money away.

Assuming all of your children are healthy, and an unfortunate event will not cause you financial hardship, you could surrender the policies and open up UTMA accounts for your children. If any of your children have a chronic condition or a predisposition for one, keep them.
Now the tricky part...you need to continue to fund the UTMAs as if they were the mandatory premiums for the policies. If you don't, you have made a foolish financial move. It will be very easy to skip a year or two...or ten of UTMA funding if money seems tight. But at least with the polcies, you will be obligated to put the money away.

Two great things you pointed out! My oldest does have a chronic heart condition - not life threatening at all, but could cause issues later with insurance, so I guess his would be the one to keep.

Plus, I do need to be diligent on the contributions for the new college funds!
Thanks!

i most certainly would NOT cancel these policies. though it sounds like NOW you want to put the money to college, you really dont mention the original intent for their purpose. if the original intent was FOR college, then i agree with pricespector, these were a poor recommendation to you (if you are paying minimum payments).

however, also as price points out, if you got them to provide guaranteed future insurability, they are wholly APPROPRIATE. more than appropriate, they are ESSENTIAL. the gift you give your child in a whole life policy (with GI) is one of the most powerful gift you could ever give ... the moreso if it is really needed. trust me, a 30 year old with 3 kids and a spouse who is diagnosed with a terminal illness is oppressed with concern over his family ... not so much if they had a guaranteed insurability policy and the implied relationship with a financial advisor.

I agree with price and 1MO. The policies ought not be purchased for college savings, but are very wise to keep for the future insurability issues. Even if your kids are healthy that doesn't promise that tomorrow they will not come down with diabetes or any other list of ailments that would inhibit purchasing life insurance later on.

-Joe

Thanks for the input. Everything I have read (ok, almost everything) states that you should not buy life insurance for kids. What I am not finding is what to do if you have already been paying for one from 11 - 4 years... Anyone else?

mom, you perplex me.

Everything I have read (ok, almost everything) states that you should not buy life insurance for kids.

everything you have read HERE supports buying a small permanent insurance policy for your kids ... just not for the purposes of {college} savings. further, we have already answered that if you already have it, you should keep it.

if you are getting other advice from other sources and it is telling you to not get it or to cancel it, then so be it. but why come back to this forum and tell us we are not telling you what you want to hear?

mom, you perplex me.



everything you have read HERE supports buying a small permanent insurance policy for your kids ... just not for the purposes of {college} savings. further, we have already answered that if you already have it, you should keep it.

if you are getting other advice from other sources and it is telling you to not get it or to cancel it, then so be it. but why come back to this forum and tell us we are not telling you what you want to hear?
Almost all information I have read not written by someone in the insurance industry has clearly stated not to buy them for children. What I was looking for was what to do if you already have them. Sorry, I haven't read an answer yet that convinces me either way and I thought if I asked again I may get different responses. I guess I was wrong. Sorry to make you answer me again.

Re-read post #4.

Almost all information I have read not written by someone in the insurance industry has clearly stated not to buy them for children.
when i started having some possible neurological problems, all the people i talked to who were not doctors said i shouldnt seek medical attention. they said i should diet and exercise better. those damn doctors ... they thought i should seek medical attention. how stupid is that?!?!

I've seen some idiotic analogies in my lifetime, but that one goes to the top of the list. Let's see now, if the OP doesn't listen to all the salesmen in an industry who tell her that she needs to buy the product that they're selling, that is equivalent to not listening to doctors who tell her that she needs medical care. Uh huh. Yep. Makes perfect sense to me. @@

while i may be a salesman, i am not YOUR salesman. so, since i am not selling you anything; allow me to wear my hats of both a financial professional and also an educator.

as an educator, i and others have answered your question which is: KEEP THE POLICIES ON YOUR KIDS.

as a professional in the field, you were told WHY. so the doctor analogy is spot on ... though if you find it idiotic, that is your right. that said, asking the same question over and over and expecting a different answer may be somewhat idiotic. your question was answered by me and others and referenced by others with tacit agreement. but, it is your life and your money. we all encourage you to do what YOU think is best even if it flies in the face of competent professional advice.

since i am on a roll, i will take this opportunity to make a public service announcement.

i agree that not all professionals in all fields are competent. financial services are no different. as such, you should do due dilligence with any advice you are given. that said, everyone thinks that since they have money, that makes them an expert at money. i guess its kinda like a venereal disease. if you got one, you feel your the expert on contraction and treatment.

that said, most not only dont know what they are doing with money, but are arrogant in their ignorance. this is the reason so few advisors really like "hanging around" in the middle market (those that are not considered affluent). those that will work with "normal Americans" do so because as an advisor they are kinda new or not too good. those that are really good prefer to work with successful families that understand the importance of a competent advisor. this thread is a minor example of how difficult it can be to lead a horse to water. so, when you hear the next story about a crappy advisor doing some misdeed, remember that the competent advisor was run off by clients who were equally incompetent in their financial lives.

p.s. in fairness, there are some highly competent advisors who stay working with the middle class. but they have the patience of Job.

"as a professional in the field, you were told WHY. so the doctor analogy is spot on ... though if you find it idiotic, that is your right. that said, asking the same question over and over and expecting a different answer may be somewhat idiotic. your question was answered by me and others and referenced by others with tacit agreement. but, it is your life and your money. we all encourage you to do what YOU think is best even if it flies in the face of competent professional advice. since i am on a roll, i will take this opportunity to make a public service announcement."

I don't know what kind of roll you think you are on, personally I just think you are hallucinating. Either that, or you have a severe problem with reading comprehension. Given either of those two alternatives, you'll forgive me if I take your ramblings and your asinine analogy with a grain of salt.

Now, if you want to try reading this thread again slowly, you will soon realize that I am not the OP and I have not asked you or anyone else any questions. I merely commented on your nonsensical post comparing not listening to a salesman with disregarding medical advice from a doctor.

Perhaps those hats to which you alluded wearing as a "financial professional" and an "educator" are on a little too tight.

i stand corrected, i misconstrued you as the original poster. upon re-reading i see now that you piped in with nothing of substance to offer. so while the topic itself is not at issue here, i stand by the analogy.

in fact, it seems downright odd that your only contribution to the whole discussion was to opine on an analogy. sure, its a free speech forum and you are certainly welcome to comment on anything you wish. it does seem a little sophomoric to me that your contribution is so limited (and insulting to boot). but, to each his (or her) own.

finally, since you are such a stickler for reading. i would point out that when you state something definitively, it is not being "alluded to". i stated that i am both a professional and an educator. i "alluded to" the fact that you are a dufus. i stand by my analogy, my statements, and my allusions.

i've said my piece on this and as you have nothing to offer which is constructive, i offer you the last word.

"finally, since you are such a stickler for reading. i would point out that when you state something definitively, it is not being "alluded to". i stated that i am both a professional and an educator. i "alluded to" the fact that you are a dufus. i stand by my analogy, my statements, and my allusions."

LOL

Touche'

;-)

Wow, what a p:ssing contest.

Was it really that important to determine if the analogy was a good one?

Mom3boys, I can understand your frustration with those who have posted so far. They are ignoring your request to help figure out what to do with the existing policies.

I think the reason is that it's just too difficult to answer without more detail. I don't think your advisor was trying to screw you, he's just in the 1MO camp that thinks that child policies are a good thing. Talk with that advisor about your concerns. If you still think you shouldn't be in the policies, have him show you other options. It's not going to bother him (he won't lose any money because of it anyway). Make sure he knows that your primary concern is college costs. If you don't like what he has to say, find someone else.

And I will say that people in the insurance industry are not all fans of child policies.

1MO,

however, also as price points out, if you got them to provide guaranteed future insurability, they are wholly APPROPRIATE. more than appropriate, they are ESSENTIAL. the gift you give your child in a whole life policy (with GI) is one of the most powerful gift you could ever give ... the moreso if it is really needed. trust me, a 30 year old with 3 kids and a spouse who is diagnosed with a terminal illness is oppressed with concern over his family ... not so much if they had a guaranteed insurability policy and the implied relationship with a financial advisor.

Just think it through.

Let's look at your 30 year old. He's got three kids and a spouse, and thusfar has not applied for insurance. Not sure why he waited until after the third kid, but whatever. Let's say he didn't believe in insurance.

Now he discovers he's going to die. He's got that all-too-common 30 year old incurable terminal illness. Who doesn't have five friends up that creek? (forgive the insensitivity, I'm making a point)

Now if only he had life insurance. OH THANK GOD! Here's that policy his mom got for him when he was a baby! They've paid into it for thirty years, and now he'll have a sixty thousand dollar check to cover his burial expenses, and meals for three months! Thanks Mom!


Back to reality...Just because you proved insurable as a baby, only means that you have coverage for that death benefit. When your thirty, and need a million dollar policy, you can't just show your child life policy and say, "Bump it up to a million, you know I'm good for it." You have to re-qualify for that new benefit. And I've got a feeling that the newly developed illness might hurt you on that application.

So even in your unbelievably unlikely story (which I'm sure has happened to someone very close to you), the child policy does SQUAT.

There are very few reasons to get a child policy, but they do exist. Future insurability shouldn't be one of them.

Some people will want to protect themselves because they know that losing a child would mentally incapacitate them for months, and they want to protect that lost income. One might want to use the insurance as an investment vehicle for the kid later (still not a fan of that one either).

The doctor analogy does work, by the way. They are just like us, salesmen. Salesmen who care about the welfare of their clients. (Couldn't resist)

funny this person asked the same question I am currently asking myself! while we are not viewing as a vehicle for college savings, we ARE seeing the need to have whole policies in place for our children (8,6,4), in case they are diagnosed "under our watch" with an illness that renders them uninsurable as an adult. our plan would be to continue paying on this policy until age 18. then it would be up to them whether to continue it, or switch to a level term policy.

so my question to the contributors would be if there are any recommendations on insurance companies for securing the best rates on our childrens whole policies? we are currently with FNWL, but would like to shop around for the best rates... with a reputable ins co, of course ;) thanks!

FinAdvisor, i have to take issue with your last post. How in the world can you state that we are ignoring the OPs request? three separate posters all agreed that keeping the policies would be appropriate if they were kept for insurance and not for college savings. these same three said if she was keeping them for college savings, they were probably poor products for this goal.

it seems like you are just trying to stir up dust (which is atypical for you).

then you go on with the fact that GI is a poor reason to have child policies. well, we can all have our own opinions. but then you offer a good reason is 'to line the pockets of the parents to help them overcome the grieving period'. OUCH! as the parent of two children, the last thing i want is a check to arrive after burying my child to remind me (not that i would likely forget) and also it seems kinda "slimy" to be 'benefiting' from the death of a child!

the PURPOSE of life insurance is to spread risk of UNLIKELY and CATASTROPHIC loss amongst a larger group so that a single person or family is not destroyed! you, of all people, should understand that. i agree that most of us dont even know one 30 year old diagnosed with a terminal illness. but several of us DO! and no one other than God Himself knows who that will or won't be until it happens. clearly, we get insurance on our lives to protect our families IF this happens as when it DOES happen, no insurance is available.

frankly, your comment in discouraging it is malpractice ... in my never humble opinion.

additionally, for you to state that

Back to reality...Just because you proved insurable as a baby, only means that you have coverage for that death benefit. ... You have to re-qualify for that new benefit. And I've got a feeling that the newly developed illness might hurt you on that application.
what part about the "G" in GI policy do you not understand. Guaranteed Insurability is Guaranteed. it gives you opportunities (generally about every three years) to get a higher policy (sometimes 4 or 5 times the original face amount) WITHOUT ANY EVIDENCE OF INSURABILITY.

your lack of understanding on this issue is sincerely disturbing to me.

might i suggest a little extra study on this topic and we can talk again then.