Monday, April 2, 2012

Life Insurance As My Child's Savings Account??

Mr. Gauger - Our super polite, fun loving,
life rocks little guy.

My husband, Jesse, and I started putting money into a bank account about a year ago for each of the boys. We would put birthday money and money from our paychecks. It averaged out to about $50 a month for each boy. Once they finished college or a trade school, they would then be given the money to help with student loans, a down payment on a home, a wedding....whatever they wanted (approval by mom and dad required though :)!).

Then I started looking into whole life policies. Whole life is permanent insurance. (Find out lots more here!)As long as you pay the premium, you have insurance until you're 100. In addition, whole life builds cash value which you can take loans and withdrawals from. The death benefit also increases overtime - they're really a cool way to own your life insurance. I also saw them as a way to generate more for our sons' education/life than by just putting money in the bank.

Gunner and Gauge both have $100,000 whole life policies. Gunner's started when he was four and we pay $566 for the entire year, so roughly $47/month. For Gauge, since we started his when he was two, we pay $540/year which equates to $45/month. Together, we're paying less than $100 a month and we've given our children some amazing options.

Option One: Cash out the life insurance policy at age 25 (I'm guesstimating this will be when they have either finished college or a trade school and join the real world of adulthood). Gunner would have approx. $15,000 built up in cash value and Gauge would have $17,000. They could surrender the policy, giving up their death benefit and take the cash to use for whatever they choose (with mom and dad's guidance).

Gunner - Our perceptive, analytical
five year old.

Option Two: Continue having life insurance without ever paying a premium again. After a certain point in a life insurance policy, the dividend you're accumulating is actually more than your premium you're paying. So you can take the dividend and use it to pay the premium, and never pay again. Gunner could stop paying on his policy at the age of 28 and Gauge at 25, they would continue to have life insurance and their cash value would grow - not as rapidly, but it would still be there to provide my grandchildren a wonderful future if something were to happen.

Option Three: Become the owner of the policy and take over payments. Now this is where I want to be like.....why didn't anyone do this for me?!?!?! Talk about securing a future. If both boys continue to pay the $45-47/month payment when they reach age 70 Gunner would have $228,000 built up in cash value and his death benefit would have grown to $381,000!! Gauge would have $242,000 in cash value and have a death benefit of $400,000. No matter what their health is at 70, they continue to pay the premiums they received at age two and that's one heck of a savings account.

The reality is this is a life insurance policy. It's meant to financially take care of loved one's left behind. Most people don't want to fathom putting life insurance on their own children.... I understand, I get it. Yet, if something did happen wouldn't you want to celebrate your child's life without putting canisters at the gas station or holding dinners to raise money? Wouldn't you want to take some time off work to grieve and start putting the pieces in a new formation in order to move through life with out worrying about losing your job too? And wouldn't it be awesome if you never, ever use this and help your son or daughter put a down payment on a home or provide for your grandchildren long after you're gone.

...That's creating a legacy....