Life Insurance

[mzteris]

Can someone please explain the different types and what's good and what's not?

And Dividend additions.

I'm paying about $98/mo for 3 policies of $50K each on my 3 kids (26, 13, 8). I've had it for 2 years. Current cash value of all three is about $700.00. Death Benefits have increased 95, 77, & 61 dollars respectively to each policy due to $10.00 "Dividend Additions" .

Is this totally stupid to have? My STBE-husband thinks so. Is there something "better" I can do with $98/mo? Would it be better to get term life for lots cheaper instead and invest the difference? (Only - to be honest - we'd probably just spend it.)

[wakemeupwhenitsover]

1. I'm not even sure where to start.

If you're getting dividends then you've either got whole life, universal life, and variable life, right? And you've paid $2400 for $700 in dividends, plus the death benefits which you would get if your child died. Is that right?

I can't help much without more info. And even probably not then since I'm not a proponent of whole life & I can never see buying life insurance of any type for children.

[feminazi]

2. I'm with wakemeup

I only buy term and I think insuring kids is a waste of money. Better to take the $98/month and set up automatic transfers to an investment account. If it's automatic, you won't have it in your hot, sweaty hands and you can't spend it!

[mzteris]

3. it's not my hot sweaty hands

that's the problem . . .

I like saving money.

People keep telling me this type is a waste but I can't get a good explanation as to WHY it's a waste.

Not the not insuring kids part - though I don't understand that either - but why not whole life?

[wakemeupwhenitsover]

4. Life insurance is to protect your loved ones that you leave behind.

So, you take out insurance on yourself to make sure that your family isn't left destitute because you are no longer there to support them.

So, I determine that my family would need X amount to get by on until the children are adults/through college. I then take out term life to insure my family a lump sum in the event of my death equal to what I've determined they will need to cover the loss of my income. As the children get older & the premiums go up I then adjust the coverage down. Obviously a 25 year old 'child' in good mental & physical health is not going to very financially dependent on me whereas a child of 8 is going to be.

Why insure your kids? If they die are you going to be left destitute? Emotionally yes, but financially? Are they primary bread winners in your family?

[mzteris]

5. I always thought you were supposed to insure kids.

My parents insured us and I thought you needed it for funeral expenses and the like. And I was always taught that children help take care of their parents when the time comes, too.

And at my age - to be honest, I guess I AM counting on my kids helping to take care of *me* when they become adults.

I've been a stay-at-home mom for the last 15 years and am getting divorced.

I just found out my IRAs are empty. Social Security right now will be based on earnings from 15 years ago. I've lost 15 years of salary advancement that I will never get back. Not to mention lost job skills, etc.

I am looking for work but will need to work part-time for a few years until my kids get a little older, I think.

My insurance is term and only around $100K. I think I only have about 5 years left on the term.

[wakemeupwhenitsover]

6. First, I'm so sorry for your situation. Have you got a good lawyer?

Your STBE needs to pay child support for the two younger ones at least. You also might be able to get alimony. And remember, if you've been married for more than 10 years you're entitled to half of his SS when you hit retirement age.

I think you're mixing apples & oranges. The children helping to take of you when they're adults really doesn't have any bearing on buying whole life insurance for them now. And if you do feel that you need life insurance for a (hopefully never needed) funeral you can get term which should be pennies on the dollar compared to whole life. Remember, life insurance pays the beneficiary of the policy. So, if one of your children die then you as the beneficiary get the money.

Last question: when you say that your insurance is term & only around $100K, what do you mean when you say that you only have 5 years left? Do you mean that the rate is only locked in for another 5 years & then your premium goes up?

Here's a site that might help:

http://www.smartmoney.com/insurance/life/index.cfm?story=whichtype0205

[mrreowwr_kittty]

7. It's not necessarily a waste of money

If you buy whole life policies for your kids when they are babies, there can be enough cash value to take tax-free loans to help defray college costs. Of course, you should also have other investment accounts set up as well. Whole life can be part of a comprehensive financial strategy.

Another good reason to get insurance on your kids is because they may develop a medical condition later in life that makes them uninsurable. An associate of mine contracted Krohn's disease in her mid-20s. Luckily, her family had bought her a whole life policy when she was a child, with a guaranteed insurability rider and option to purchase additional insurance with no underwriting. She now has the coverage she needs for her family, despite having a condition that no insurance company would touch her with today.

(Yes, I am a former insurance agent)

[wakemeupwhenitsover]

8. No doubt there are rare situations where buying whole life was

the smart choice, but for most I think that the high fees (as much as 3%) & high commissions (often equal to the first years premiums) don't (for most people) justify the small chance that a child will end up uninsurable. Add to that that it can take up to 15 years for the policy holder to break even.

Of course, canceling early means the holder probably just threw buckets of money down the drain.

As far as helping to defray college: there are a lot of better options, IMO, available.

And,

[mrreowwr_kittty]

9. If whole life isn't right for you, based on your situation and financial goals

Then you shouldn't get it. However, it is a good thing for some people and I hate to see people dismiss it out of hand.

I can tell you from my experience having to inform people that they were uninsurable, the occurence isn't as rare as you might think. Probably a good 15 - 20% of my young clients were turned down or rated extremely high due to things like diabetes, lupus, cancer, height/weight etc.

Very few people make major claims on their auto or homeowner's insurance but I tend to think most smart people would carry it even if it became legal not to.