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3 replies
Who's talking? (2)
AutumnRain G.
Jennifer L.

Life insurance for kids?

AutumnRain G. 6 years ago

When a couple has a baby, many times the first thing they will do is protect their new family with a life insurance policy for dad, and maybe one for mom too, but most stop at that.  Which is a shame because they are missing out on an opportunity to set up an amazing resource for their new little one, something they will be able to put to work for them their entire life!

The full article is available on my blog:  www.momsurance.com

Feel free to ask any questions you have here, I'm happy to answer!

Jennifer L.
Jennifer L. 6 years ago

When Borrowing against the policy, what is the interest rate or repayment terms and how would that compare to a loan from a bank assuming that the collateral is no object?  Is there a term for repayment?  And later in life, is that policy still acting like a life insurance policy? If so, what is the coverage?

The whole insurance topic makes me nervous but I like this idea better than a straight insurance policy.

AutumnRain G.
AutumnRain G. 6 years ago

When you borrow on your whole life policy, the insurance company will have repayment terms and charge interest.  However, while the loan is in effect, you will still be collecting interest on the cash value, so depending on how much cash value has built up, it's possible for the interest you are earning to offset partially or completely the interest you are paying on the loan. 

That's one of the main reasons I advocate starting the policy as early as possible in a child's life, so that by the time you want to take out a loan for them, you will have accumulated a large cash value to borrow against.

Even while the loan is due, the policy remains fully in effect with the same benefit value as long as you continue paying the monthly premium. 

I hope I answered your question!  If you want more in-depth details or have other questions, feel free to call me or text me and I'll be happy to talk specifics with your situation 661-400-0867

AutumnRain G.
AutumnRain G. 6 years ago

Almost forgot to reply to the "straight insurance policy" you mentioned.  I'm not sure what kind of policy you meant by that, there are several types, but one of the main kinds people think of when they say "regular" or "standard" policies is Term Life, which is very commonly offered by employers or bought by people who are lured in by the ultra low price.

I'm going to be writing about that next on my blog, but there's a HUGE difference in Term Life and the other types, like Whole, Indexed Equity, etc.  Term life is dirt cheap and has larger death benefits compared to the others, but there's a very important reason for that.

As agents we often refer to Term Life as "renting insurance".  This means every payment you make goes right to the insurance company, and it has no value whatsoever unless you die.  It builds no cash value, you can't borrow against it, it's worthless while you are alive.  Compare this to the other types of insurance, where every payment you make builds cash value to your account.  You can borrow against it, cash it out, convert it... it has worth during your lifetime.

Also, Term Life has an expiration date, usually 1 year, 5 years, 10, maybe 15.  At the end of that term, you have two options, allow the policy to cancel and feel good about the donation you made to the insurance company, or renew it at the new rate, which is double, triple, sometimes 10 TIMES the first rate.  If you develop some kind of health issues during your term and are unable to qualify for any other type of insurance, you are stuck with insanely expensive insurance with the renewed Term, or no insurance at all.  And guess what happens at the end of the next term?  Yep, double, triple, 10 times the new higher amount if you want to keep it.

Buying a Term Life policy means you're basically betting that you'll die within the 1, 5,10, 15 year term, or it was money down the toilet. Insurance companies make a lot of money on Term Life policies.  

You know the saying: if it sounds too good to be true...