Whole life insurance for kids

[Anonymous]

I have two toddlers and it was recommended to me to get them whole life insurance while it is still cheap. Has anyone done this for their children? I’m not that familiar with it but have researched a bit online. I don’t really understand the cash value component but know it’s important to use a reputable company (our own life insurance is through USAA). Any advice? Is it a scam or is this a thing everyone does that I didn’t know about?

[Anonymous]

it's a scam. I know a bunch of people who end up adults with a policy worth $10k and if someone had just put the cost of the policy aside in long-term savings/investments they'd be a lot better off.

Go ask the bogleheads if you want more.

[Anonymous]

No, it's pretty scammy. Avoid. Put the money into long-term savings vehicles (529 or others) instead.

[Anonymous]

My dad--who has been an insurance lawyer for 30 years--said in no uncertain terms that it is a massive scam.

[Anonymous]

We have only a tiny bit of whole life on our kids. Very small policies. We really just have it because the policies can be kept when they are adults in case they are dxed or in some accident between now and then that will preclude them from having private term insurance when they are adults and have a family of their own.

It is a small price to pay for that peace of mind. Once they are adults we will drop it.

[Anonymous]

Anonymous wrote:My dad--who has been an insurance lawyer for 30 years--said in no uncertain terms that it is a massive scam.

I have been an insurance lawyer - representing companies - for 18 years, and he's right.

[Anonymous]

A total scam. Why would you need to have life insurance on a child? No one depends on the child's income for support.

[Anonymous]

Anonymous wrote:A total scam. Why would you need to have life insurance on a child? No one depends on the child's income for support.

A PP noted the one reason--an illness that might preclude their being able to get a term policy later. But read the fine print--often you can't expand or
modify the policy anyway so it's moot and you might as well have just saved or invested the money to get to the same end.

[Anonymous]

I am an actuary - no

[Anonymous]

Is that like the Gerber life insurance policy? I feel so bad for people who fall for that.

What's way more important OP is that you get TERM life insurance for yourself and spouse.

[Anonymous]

I sold that stuff for a couple of years long time ago, and no. My SIL got our son a Globe policy when he was around 2, I think it was probably term with a conversion option at 18 because I'm not aware it ever had any cash value.

Although. . . as a toddler he always wanted to drive the car and we'd tell him he couldn't because he didn't have insurance. So when his aunt told him (age 3) she bought life insurance for him he asked if he could drive now.

(It got crazier after that because she's telling him it's life insurance and money when a person dies and he's got dollar signs in his eyes thinking HE's going to get the 80 grand and she's saying, well, no. Should add that my SIL and her husband are terribly organized, straight-laced, also childless people and BIL is an accountant and she was trying to explain this in a perfectly logical way but increasingly hilarious. And no, we did not convert the policy. This was a tradition she inherited from their father.)

[Anonymous]

For the vast majority of people and the vast majority of plans, it's a bad investment. Pretty much the only exception is where you have a kid who has or is very likely to develop a medical condition sufficiently serious that they will be uninsurable as an adult, but that doesn't affect them so severely that you can't reasonably expect as an adult they may have a family they support through employment. And even then, you need to be very careful to select a policy that will allow them to buy a substantial amount of additional coverage at a reasonable price as an adult without going through underwriting.

[Anonymous]

Anonymous wrote:We have only a tiny bit of whole life on our kids. Very small policies. We really just have it because the policies can be kept when they are adults in case they are dxed or in some accident between now and then that will preclude them from having private term insurance when they are adults and have a family of their own.

It is a small price to pay for that peace of mind. Once they are adults we will drop it.

Peace of mind for what? Why do you need money if your child dies? They're not supporting you financially.

Understand why people buy life insurance - it's to provide financial support to the people who are left behind (spouse, children) after a breadwinner dies.

[Anonymous]

Anonymous wrote:

Anonymous wrote:We have only a tiny bit of whole life on our kids. Very small policies. We really just have it because the policies can be kept when they are adults in case they are dxed or in some accident between now and then that will preclude them from having private term insurance when they are adults and have a family of their own.

It is a small price to pay for that peace of mind. Once they are adults we will drop it.

Peace of mind for what? Why do you need money if your child dies? They're not supporting you financially.

Understand why people buy life insurance - it's to provide financial support to the people who are left behind (spouse, children) after a breadwinner dies.

I think PP means the peace of mind of knowing her children will have life insurance as adults even if they develop an uninsurable condition. But I still don't think whole life for kids is an especially good tool for this. You're better off self-insuring by putting that money into long-term savings. Many adults who are wage earners with significant income will also have access to group life policies, which don't require underwriting. Seeking out jobs with that benefit would probably be a better strategy for the very small number of people for whom this is an issue.

[Anonymous]

No. No whole life for anyone.

Read suze orman on whole life policies. In general it pays less out than what you would make by just investing that money in the stock market long term, and it doesn’t beat inflation better than bonds.