Child Life Insurance

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powermega
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Child Life Insurance

Post by powermega »

I'm considering buying some small whole life policies on my two young children (both less than 3 years old). The intent is to have my daughters have permanent insurance for the eventual day that they die. The policies would have the "policy purchase option" and "waiver" riders, so they would be able to buy additional insurance without medical underwriting. The base policies would be small ($50k), with a 7-year term rider so that the policies do not become a modified endowment contract (MEC). The policies would be completely paid up after 15 years, so no premiums would be paid after that. I would give them these policies around their 20th birthday. They would be able to borrow against the cash value if they needed to (I wouldn't encourage them to do that). The premiums for each policy would be just over $60/month to be paid for 15 years.

What is the boglehead opinion about insurance in this scenario?
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dhodson
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Re: Child Life Insurance

Post by dhodson »

Bad idea

First off the amount of insurance you can protect is very small so those polices aren't worth much at all as an adult for protection.

2nd off the return is terrible and now you have just compounded that by likely many more decades than if purchased as an adult (which is still typically a bad idea).

Much better to make sure you have adequate term on yourself and adequate disability insurance on yourself.

I should also add there are finance charges that are significant for paying a policy monthly instead of yearly.
Twins Fan
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Re: Child Life Insurance

Post by Twins Fan »

I wouldn't... why make the insurance companies rich if you don't have to? I see life insurance as death insurance really for dependants if one passes. Do your daughters have dependants? :)

Have you thought about I bonds and put the girls' names on them? I believe they can be used tax free for education, right? That may be a better way to get a start for your daughters. Or, a 529 type plan if you don't have that going...

I'm just against giving insurance companies more than I need to.

Let's see what others think...
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prudent
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Re: Child Life Insurance

Post by prudent »

I never liked the idea of life insurance for children. I know the agents point out the possibility of not being insurable later, but to eliminate that tiny risk costs a heck of a lot of money for a miniscule policy face value. Enormously expensive insurance IMHO.
NoVa Lurker
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Re: Child Life Insurance

Post by NoVa Lurker »

There is absolutely no reason why you should buy life insurance for your toddlers.

You would be paying $60/month for 15 years in exchange for (1) life insurance that is not necessary, because they are children, and nobody is depending on their income, plus (2) an investment that has very little net value.

If they need life insurance later in life, they will certainly be able to get it.
The Wizard
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Re: Child Life Insurance

Post by The Wizard »

I agree with the others, don't do it.
In poor countries and/or poor people they sell this insurance for the event the child dies before adulthood, they can afford a decent funeral.
Life insurance for non-poor people in the US nowadays is to support your DEPENDENTS in the event you pass away.
So buy YOURSELF a Million in term life and we'll be happy...
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Re: Child Life Insurance

Post by HardKnocker »

[OT comment removed by admin LadyGeek]
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FelixTheCat
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Re: Child Life Insurance

Post by FelixTheCat »

I've never understood the purpose of child life insurance. Insurance is to protect Mom/Dad income in case of the other parent's death OR provide for children in case both parents go.

IF you want to do something for the kids, set up a 529 or UGMA account.
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Zabar
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Re: Child Life Insurance

Post by Zabar »

Don't waste your money. Better to save the $120/month towards their educations in two 529 plans, or simply set it aside so that you can help them contribute to a Roth IRA when they start working as teenagers. Even with the guaranteed insurability, life insurance for young children is a sucker's bet.
Quickfoot
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Re: Child Life Insurance

Post by Quickfoot »

We carry term life all three of our kids, $10,000 each and it costs us $0.20 per month per kid through my employer. If you are wanting to provide money to them it'd be better to put it in a trust or Vanguard's variable annuity.
There is absolutely no reason why you should buy life insurance for your toddlers.
There's no reason to buy whole life insurance for toddlers. Term life makes sense, most parents can not afford burial expenses if something happens to their kids. Most employers and even many credit unions offer $10,000 of coverage for less than $2 per month per kid.
The Wizard
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Re: Child Life Insurance

Post by The Wizard »

Quickfoot wrote: ...There's no reason to buy whole life insurance for toddlers. Term life makes sense, most parents can not afford burial expenses if something happens to their kids. Most employers and even many credit unions offer $10,000 of coverage for less than $2 per month per kid.
I disagree with your statement that MOST parents cannot afford final expenses in the sad event that a child passes away. Not in the US, not in 2014...
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inbox788
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Re: Child Life Insurance

Post by inbox788 »

powermega wrote:I'm considering buying some small whole life policies on my two young children (both less than 3 years old). The intent is to have my daughters have permanent insurance for the eventual day that they die. The policies would have the "policy purchase option" and "waiver" riders, so they would be able to buy additional insurance without medical underwriting. The base policies would be small ($50k), with a 7-year term rider so that the policies do not become a modified endowment contract (MEC). The policies would be completely paid up after 15 years, so no premiums would be paid after that. I would give them these policies around their 20th birthday. They would be able to borrow against the cash value if they needed to (I wouldn't encourage them to do that). The premiums for each policy would be just over $60/month to be paid for 15 years.

What is the boglehead opinion about insurance in this scenario?
Yes, if you've exhausted all your other uses of your cash. Do you have $300,000 in each of your children's 529 plan? (529 plan IMO is higher priority than death insurance; there may be intermediate priorities between these two) These (whole life policies) are bought for your grandchildren, not children.

Why spend more than $10,000 on this scheme? Why not take the $10,000 you're planning on spending and save it/invest it. Over 15 years, it could double twice, so you would likely be looking at having over $20,000 cash in the account vs. just some guarantees that you likely won't use. You're giving up the life insurance part of the equation, but it doesn't look like you ever plan or needed it. Life insurance as an investment (unless you die) have poor returns. Do you want to gift them a $50,000 line of credit (which they have to pay back if they borrow) or simply $20,000 cash that will continue to grow if they don't touch it?

BTW, you seem to have paid attention to the sales info. It took me a while before I learned what a MEC is and what it really meant. I suspect many people don't really understand it, or it's implications. My simplistic understanding is this. Your child dies, you (or the beneficiary) gets a tax-free inheritance. Government doesn't like tax-free stuff, and it's often desirable to skip on taxes, but the bottom line is that the insured is dead! Keep that in mind when you consider who needs that benefit.
Last edited by inbox788 on Tue Jun 10, 2014 12:58 pm, edited 2 times in total.
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interplanetjanet
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Re: Child Life Insurance

Post by interplanetjanet »

NoVa Lurker wrote:If they need life insurance later in life, they will certainly be able to get it.
Sadly, some of us do develop health conditions in childhood that make us largely uninsurable. That said, I don't think a whole life policy is generally a good idea, the costs are simply too high for what you get.
Quickfoot
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Re: Child Life Insurance

Post by Quickfoot »

I disagree with your statement that MOST parents cannot afford final expenses in the sad event that a child passes away. Not in the US, not in 2014...
Then you are completely out of touch with the financial situation of most parents. Most parents have less than $1,000 in liquid savings, do not have college savings accounts for their kids, are not contributing to retirement, and are living pay check to pay check with $5,000 to $15,000 of credit card debt. They absolutely can not afford final expenses if something happened to one of their kids without going into even more debt. As someone who has lost a lot of people (thankfully not a child) the last thing you want to be worrying about is how you are going to pay for the casket or the funeral.

Even for the parents that can afford it, $0.20 per month is $43.20 for 0-18 years of age, final expenses can easily be in excess of $10,000. Makes absolutely no sense not to carry term life on kids.
Last edited by Quickfoot on Tue Jun 10, 2014 12:00 pm, edited 1 time in total.
dhodson
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Re: Child Life Insurance

Post by dhodson »

interplanetjanet wrote:
NoVa Lurker wrote:If they need life insurance later in life, they will certainly be able to get it.
Sadly, some of us do develop health conditions in childhood that make us largely uninsurable. That said, I don't think a whole life policy is generally a good idea, the costs are simply too high for what you get.
Even when that does happen, the amount of protection that you can get via whole life on a child is very small even if exercising all of the increase options available. It just doesn't really protect one much.
dhodson
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Re: Child Life Insurance

Post by dhodson »

Quickfoot wrote:
I disagree with your statement that MOST parents cannot afford final expenses in the sad event that a child passes away. Not in the US, not in 2014...
Then you are completely out of touch with the financial situation of most parents. Most parents have less than $1,000 in liquid savings, do not have college savings accounts for their kids, are not contributing to retirement, and are living pay check to pay check with $5,000 to $15,000 of credit card debt. They absolutely can not afford final expenses if something happened to one of their kids without going into even more debt. As someone who has lost a lot of people (thankfully not a child) the last thing you want to be worrying about is how you are going to pay for the casket or the funeral.

Even for the parents that can afford it, $0.20 per month is $43.20 for 0-18 years of age, final expenses can easily be in excess of $10,000. Makes absolutely no sense not to carry term life on kids.
For most people it will still be cheaper to bury their child than to raise the child. I know that doesn't sound pretty but its the truth. If you can't afford to bury a child or take a loan to bury a child then you have very little chance of keeping a whole life policy in force. There is no free lunch in this world.
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munemaker
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Re: Child Life Insurance

Post by munemaker »

powermega wrote:I'm considering buying some small whole life policies on my two young children (both less than 3 years old). The intent is to have my daughters have permanent insurance for the eventual day that they die. The policies would have the "policy purchase option" and "waiver" riders, so they would be able to buy additional insurance without medical underwriting. The base policies would be small ($50k), with a 7-year term rider so that the policies do not become a modified endowment contract (MEC). The policies would be completely paid up after 15 years, so no premiums would be paid after that. I would give them these policies around their 20th birthday. They would be able to borrow against the cash value if they needed to (I wouldn't encourage them to do that). The premiums for each policy would be just over $60/month to be paid for 15 years.

What is the boglehead opinion about insurance in this scenario?
I cannot imagine any knowledgeable person other than a life insurance salesman would think buying life insurance for children makes sense. The purpose of insurance is to cover obligations if you die. Children have no obligations, and the chance of them passing away as children, in most cases, is very low. Yes, there is a remote chance you could have final expenses...but I think this would be pretty far down on the list of things to worry about.

The other thing about life insurance is the commissions are very high. Ask the salesman how much he earns on the sale. Some of the money you pay for life insurance goes to the agent, and some to the product. The amount paid to the agent detracts from the value of the product. It is a financially inefficient product. Compare that to investing in stocks, bonds or mutual funds. Even very expensive mutual funds are going to have expense ratios far below whole life insurance. More of your money goes into the product and less into "overhead." If you want complete safety, consider ibonds or even series E savings bonds.

Take the money and invest it in a custodial account or 529 account. They will be far better off.
RunningRad
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Re: Child Life Insurance

Post by RunningRad »

Like most of the respondents, I, too, would pass.
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powermega
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Re: Child Life Insurance

Post by powermega »

Thanks to everyone who has responded so far. I appreciate all of the comments and insight.
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BruDude
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Re: Child Life Insurance

Post by BruDude »

$100k 20-year term on a child would cost about $11/month, or a permanent $100k policy would cost about $25/mo. The biggest problem most parents have after the loss of a child is not the funeral expenses, it's the lost time from work coping with the situation. I've seen long-term disability claims that have resulted from the death of a child due to anxiety/depression. One client had their son killed by a drunk driver and decided to sell their business, sell their house, and move their family to a different state for a "new start"....IMO it's not as simple as "you should be able to afford the funeral costs" or "you shouldn't profit off the death of a child". There are unique circumstances for everything - if $10/mo or $20/mo isn't going to strain your budget, then maybe it's worth the peace of mind.

There is minimal money to be made for the insurance agent on such a small policy, and when I do child life policies it's more of a favor to the client than anything else. The commission a child term policy would probably be around $50 total (~$75 of the total $125 cost is the policy fee, which is non-commissionable with most companies), and a permanent policy would be around $200 total. Given that the average life insurance sale generates a commission around $800-1000, it's not a moneymaker for the agent and you won't see too many agents seeking out people to buy life policies on their kids.
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Re: Child Life Insurance

Post by Ron »

My parents had policies for each of their children. I cashed mine in at age 21 to cover living expenses at the time. Of the other policies, one was used to pay for expenses when my 2-year old brother passed; the remainder $$ after funeral expenses was given to charity.

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The Wizard
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Re: Child Life Insurance

Post by The Wizard »

dhodson wrote:
Quickfoot wrote:
I disagree with your statement that MOST parents cannot afford final expenses in the sad event that a child passes away. Not in the US, not in 2014...
Then you are completely out of touch with the financial situation of most parents. Most parents have less than $1,000 in liquid savings, do not have college savings accounts for their kids, are not contributing to retirement, and are living pay check to pay check with $5,000 to $15,000 of credit card debt. They absolutely can not afford final expenses if something happened to one of their kids without going into even more debt. As someone who has lost a lot of people (thankfully not a child) the last thing you want to be worrying about is how you are going to pay for the casket or the funeral.

Even for the parents that can afford it, $0.20 per month is $43.20 for 0-18 years of age, final expenses can easily be in excess of $10,000. Makes absolutely no sense not to carry term life on kids.
For most people it will still be cheaper to bury their child than to raise the child. I know that doesn't sound pretty but its the truth. If you can't afford to bury a child or take a loan to bury a child then you have very little chance of keeping a whole life policy in force. There is no free lunch in this world.
Correct on the burial cost vs the raising to age 18 cost.
But indeed, there apparently are insurance sellers who "prey" on lower income folks for this insurance, thus making a small contribution toward KEEPING them lower income...
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BL
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Re: Child Life Insurance

Post by BL »

You also have the possibility of the company going out of business or being bought up by another company. A company that sold us a small policy ages ago has now been swallowed a couple of times. It could only be found by using the internet. The last company is a subsidiary of Conseco.

From Idaho department of insurance: http://www.doi.idaho.gov/insurance/Succ ... px?AID=159
Historical Life Company Search
According to our records, GREAT COMMONWEALTH LIFE INSURANCE COMPANY (159) is inactive.

This is the succession path for GREAT COMMONWEALTH LIFE INSURANCE COMPANY:

DATE Company Name Status Successor
9/30/1983 GREAT COMMONWEALTH LIFE INSURANCE COMPANY (159) Merged Into WABASH LIFE INSURANCE COMPANY (1457)
6/30/2001 WABASH LIFE INSURANCE COMPANY (1457) Merged Into WASHINGTON NATIONAL INSURANCE COMPANY (197)
WASHINGTON NATIONAL INSURANCE COMPANY (197) Active
LordB
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Re: Child Life Insurance

Post by LordB »

BruDude wrote:$100k 20-year term on a child would cost about $11/month, or a permanent $100k policy would cost about $25/mo. The biggest problem most parents have after the loss of a child is not the funeral expenses, it's the lost time from work coping with the situation. I've seen long-term disability claims that have resulted from the death of a child due to anxiety/depression. One client had their son killed by a drunk driver and decided to sell their business, sell their house, and move their family to a different state for a "new start"....IMO it's not as simple as "you should be able to afford the funeral costs" or "you shouldn't profit off the death of a child". There are unique circumstances for everything - if $10/mo or $20/mo isn't going to strain your budget, then maybe it's worth the peace of mind.

There is minimal money to be made for the insurance agent on such a small policy, and when I do child life policies it's more of a favor to the client than anything else. The commission a child term policy would probably be around $50 total (~$75 of the total $125 cost is the policy fee, which is non-commissionable with most companies), and a permanent policy would be around $200 total. Given that the average life insurance sale generates a commission around $800-1000, it's not a moneymaker for the agent and you won't see too many agents seeking out people to buy life policies on their kids.

And would this family who sold everything to get away be comfortable paying for that move with money from their child's death?

I'm sorry, but that is a mental health issue. Additional money assuming they have health insurance and can pay for mental healthcare is unlikely to help. And if they don't/can't afford that then the money they would spend towards life insurance would be far better off paying for health insurance for themselves or going towards an emergency fund.
rallycobra
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Re: Child Life Insurance

Post by rallycobra »

I did 10 annual payment, 250k policies with Guardian on a 0 yr old boy and girl last year with guaranteed insurability riders. It is about $2500 annually for the boy and $2000 for the girl. Break even point for cash value is about 12 years. Obviously, you can do better purchasing mutual funds with $2500 a year, but I want the kids to be able purchase life insurance in the future if they have families and have a health problem. I know of several breadwinners that can't purchase life insurance due to medical conditions and they lose sleep over it. The minimum rate of return looks like about 2.7% over 70 years.

My wife and I are both self employed professionals, and if something were to happen to a child, I'm sure there would be a lot of time missed at work and lost revenue, so this would function as a buffer, but that is not the reason we purchased the policies, but it is a benefit. It is like a short term disability policy.

I am not a believer in whole life, and I only purchased term for myself. In our situation, the policies makes sense to me.
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6miths
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Re: Child Life Insurance

Post by 6miths »

Pass. For the many reasons stated.
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LongerPrimer
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Re: Child Life Insurance

Post by LongerPrimer »

We got son (1990?) a small WL policy. If I remember it was slightly cheaper to do this than to place him on our term policy or on employer's group life. When son went to college (2002), I bought a term policy at preferred rates for the reason OP stated for future insurability and stopped the WL policy. Today he climbs local PNW mountains and probably smokes weed (Washington). Do these activities kick him out of preferred rates? :?
jstrazzere
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Re: Child Life Insurance

Post by jstrazzere »

You should buy insurance to protect the people who depend on the insured's income, to protect the people who would suffer significantly financially, if the insured passed away. That's what insurance is for.

Since these are children, nobody depends on their income yet, nobody would suffer financially if they passed away. Thus they should not be insured.

If you are trying to provide money for their future, set up a 529 account and deposit the $60/month there.
Or set up a trust for their eventual retirement, and invest $60/month there.
Or talk to a financial advisor about some other form of investment in their future.

But wait until the children have dependents of their own (if they ever do) before insurance is considered. That's the only time it will actually be needed.
The Wizard
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Re: Child Life Insurance

Post by The Wizard »

rallycobra wrote: ...My wife and I are both self employed professionals, and if something were to happen to a child, I'm sure there would be a lot of time missed at work and lost revenue, so this would function as a buffer, but that is not the reason we purchased the policies, but it is a benefit. It is like a short term disability policy...
Actually, this is a decent consideration that I had not thought of.
Nonetheless, if I was able to do it again (two kids), I'd still bite the bullet and self-insure on this issue...
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bluemarlin08
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Re: Child Life Insurance

Post by bluemarlin08 »

There are times when this comes up with clients and I discourage for many of the reasons submitted. If they persist I will suggest adding a small term rider that will carry them to their twenties. Some people "want' to purchase a permanent policy because their parents did. It's really not a big financial decision, if one wants to do it, then do it.
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