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Posted Aug 19, 2019
By Karin Price Mueller | NJMoneyHelp.com for NJ.com
Q. My daughter is going off to college and now that she’s (sort of) an adult I’m thinking of getting her life insurance. How can we choose the right policy and what should it cost?
— Parent
A. Congrats to your daughter!
Life insurance for children and young adults is often a controversial topicbecause most people think of life insurance as a way to replace a breadwinner’s income.
But there are other reasons someone may want a young person to have a policy.
For a young adult, a whole life policy could offer benefits, said Ed Gaelick, a Chartered Life Underwriter and Chartered Financial Consultant with PSI Consultants in Glen Rock.
He said he would recommend a pure whole life policy from a mutual life insurance company.
Gaelick said there are several benefits to this kind of policy: Policies lock in premiums at a young age for life, they share in the insurance company’s profits in the form of dividends and they build cash value that is not subject to market risk. They also have guarantees and tax advantages, values are protected from some creditors, they can supplement retirement benefits and they can provide a death benefit that will increase over time, keeping pace with inflation.
“Your child will have a policy in place when life insurance becomes important to them at some point in the future,” he said. “They will also then own a financial product that has already accumulated cash value. How much you allocate towards a policy will determine the future values.”
Gaelick said one of the best features of pure whole life is that current values are not market risk sensitive, meaning a downturn in the stock market will not impact the values already in the policy.
If you go with this kind of policy, you should look for a waiver of premium rider.
“This rider will waive the premium deposits in the event of a total disability. The insurance company will make the deposits for you, protecting the benefits and cash accumulation,” he said. “You don’t owe that money back. It doesn’t accrue. It is waived. There is no other financial product the does this.”
Accumulated values also give you options for the future, Gaelick said. You can use it for any reason.
“You could surrender some cash value, borrow against the values or a combination of both,” Gaelick said. “You could take out current dividends. Many that own whole life simply let the values increase and accumulate.”
And importantly, the premiums never increase, so you would lock in a low cost for your daughter that will remain as long as the policy is in force.
You should consult with an unbiased advisor that has vast experience in whole life to properly explain all the advantages of owning whole life and which carriers to consider, whether it be for you or your children, and whether it’s appropriate to meet your goals.
Email your questions to Ask@NJMoneyHelp.com.
Karin Price Mueller writes the Bamboozled column for NJ Advance Media and is the founder of NJMoneyHelp.com. Follow NJMoneyHelp on Twitter @NJMoneyHelp. Find NJMoneyHelp on Facebook. Sign up for NJMoneyHelp.com’s weekly e-newsletter.
