Why I Decided to Buy Life Insurance for My Young Children
Why I Decided to Buy Life Insurance for My Young Children
Given that life insurance is specifically designed to protect against income losses, financial specialists often argue that it is unnecessary for children because they earn little or no money. Some also claim that life insurance policies for children are poor investments, reasoning that it’s better to spend the money on other things to help the child.
However, there are reasons to consider insurance plans for your kids. Because of what they could cost my wife and me in missed earnings if the worst happened, I have policies for all three of my sons. A policy also protects you financially from debts and other expenses that might arise if you lose a child.
To sum up, getting your children insured protects you from the terrifying prospect of losing them and then having to deal with the financial consequences while still dealing with the emotional trauma.
Continue reading for a breakdown of my reasoning for purchasing the policies for all three of my sons before each turned one. I also understand that certain parents do not want or need to purchase such insurance policies. I provide some advice on reaching a decision based on my 16 years as a life insurance agent.
Income losses
What made me get insurance for my children started with a tragedy that occurred close to me. A couple of years ago, two of my good friends lost their one-year-old daughter. The family’s breadwinner, who was devastated, couldn’t return to work for almost two months. He was not compensated during this period, so the loss was both emotionally and financially devastating.
When my kids were born, I feared that same scenario. Many companies have bereavement leave, which allows workers to take time off when a close relative dies. However, the employee is not entitled to pay during this time off in any state. I was concerned that if one of our children died, my wife and I would lose income during the weeks or months we could not work due to our grief.
I figured that a $50,000 policy on each child would provide us with three to six months’ worth of income. However, a package that increased the coverage to $100,000 cost just a few dollars more per month in premiums. So, that’s what I went for. The policy was just $9 a month, which was an incredible bargain. Although I’ve seen pricing as low as $3 a month for a $5,000 policy, a $20,000 policy typically costs $12 to $14 per month — enough to cover at least a month’s worth of missed wages and some other expenses.
Of course, certain parents may have excellent job benefits that will continue to compensate them through a lengthy bereavement. Or some may have the financial resources to go through a lengthy period with no income easily.
Neither of these is my case. My children are now 7, 10, and 12 years old and healthy, while I still gladly pay their life insurance policies.
Funeral costs
The harsh reality of losing a kid includes the need to say goodbye to them and the financial burden of making such arrangements. According to Choice Mutual, a funeral with burial and viewing will, on average, cost you $7,360 in the U.S.
Although my wife and I were both well-paid when our children were born, such an expense would have drained a significant portion of our savings. Our situation was similar to that of other parents of our generation. According to a new study by The College Investor, today’s Millennials (19-37 years old today) have an average net worth of only $10,400.
Again, if you have more money than the average parent with young children and can handle a hit to your savings with ease, insuring against potential funeral costs may not be a top priority. However, if a $7,000-plus funeral bill is out of reach, as it was for me when my boys were born, this possible cost might be another reason to consider purchasing a life insurance policy for your children.
My children’s future debts
Another risk I had in mind when buying life insurance for my children was co-signing on future loans for them and then being responsible for those debts if the unimaginable happened. In other words, I wanted to be able to support my kids and sign those debts without fear of being unable to pay them in the future if the worst were to happen.
I was motivated by a personal example. When I was 20, I bought my first car, a stunning, grey Nissan Maxima. I had put together $10,000 for a down payment, which was a significant sum for me at the time. I could easily pay the $157 monthly payment thanks to my parking valet earnings.
Since I had no financial history and no credit score, I was (unsurprisingly) turned down for the loan. My grandfather had to help me by co-signing the loan. I didn’t know it at the time, but my grandfather would have been responsible for repaying the loan if anything happened to me. To put it another way, he would have had the obligation of paying it off.
This story came to mind before I purchased the policies for my children. I knew having some life insurance on them would be beneficial if I had to co-sign on a debt of theirs. I was less concerned about co-signing an auto loan than I was about co-signing a student loan, which might result in much more debt. Private college tuition with room and board averagely costs $46,950 a year, and around 93% of all private student loans are with a co-signer.
According to the National Center for Education Statistics, about a third of students do not take on debt when pursuing a four-year degree, and this proportion increases for lower degrees. When students get loans, it’s typically from the federal government, which doesn’t require a co-signer, unlike private lenders.
Getting a life insurance policy on your children might help clear their debts when they pass away, which would be a welcome relief at a difficult time.
Deciding
The need to cover against the loss of your income, help with funeral expenses, and protect yourself against potential debts you might inherit if your child passed away are all valid reasons to buy life insurance on your children.
Your children, on the other hand, do not need life insurance from a financial aspect. You could save the money you’d spend on premiums by helping your children pay for college or by giving them a cash bonus when they reach a certain age.
When looking for a policy, keep in mind that it will be whole life insurance. This form of life insurance is more expensive than term life insurance, which I usually recommend. (My own children’s policies are term life, but this form of policy is not available for children anymore.) The cash benefit is a feature of whole life insurance that allows you to save money. When shopping for life insurance, compare policies on premiums and the cash value part.
You can also purchase insurance for your child with a “child carrier” on your term-life policy, which will probably be less expensive. However, this is only an option when you first purchase your policy; a child cannot be added to the coverage later.
Higher FEGLI Rates in 2016 by Kevin Wirth
Kevin Wirth discusses the Higher FEGLI rates in 2016
If you’re enrolled in the FEGLI (Federal Employees’ Group Life Insurance) program, either as an employee or a retiree, you may have recently noticed that your premiums have increased. This is because the FEGLI plan has changed its premiums for those who are currently enrolled, effective as of the first pay period of 2016.
Although the rise in cost is considered to be “slight” for older enrollees (and in fact the cost for those who are in the younger age brackets has actually gone down), the increase in premium can nevertheless be difficult for some who have not had a pay raise lately, or who are living on a fixed income.
Yet, if you’re planning to cancel your FEGLI coverage due to the higher premium, you may want to consider all of your alternatives prior to moving forward, as well as the financial consequences of going without this important financial protection.
For example, most people carry life insurance so as to ensure that their loved ones will not have to endure some type of financial hardship upon their passing. With that in mind, ask yourself what type of debt you may be leaving behind, such as:
- Unpaid mortgage balance
- Personal loans
- Auto loan(s)
- Credit card debt
- Any business loans or debt
You may also have additional financial needs to cover, such as a surviving spouse and / or dependent’s ongoing income – especially if retirement income sources will be reduced or eliminated upon your passing.
In addition, today, even the cost of basic final expenses can exceed $9,000 in many areas of the country now. This is especially the case when factoring in elements such as a burial plot, head stone, transportation, and obituary notices.
So, while the cost of your FEGLI premium may be rising, the cost of going without life insurance protection could be a great deal more. If this particular coverage is too cost prohibitive, though, there may be other options available in terms of an individual life insurance policy or a final expense life insurance plan.
More From Kevin Wirth:
Getting Started Early for a Successful Retirement by Kevin Wirth
FEGLI and the Living Benefit by Paul Kalra
Paul Kalra, FEGLI and the Living Benefit
Paul Kalra is a financial planner and federal retirement expert in Lake Forest, California.Although most people purchase life insurance for the death benefit protection that it provides, many may not realize that there are other ways in which this financial tool can be used in taking care of additional needs while the insured is still alive.
Commonly referred to as “living benefits,” some life insurance policies today will allow an insured to access the death benefit funds if he or she meets certain criteria, such as being diagnosed with a terminal illness. Today’s FEGLI (Federal Employees’ Group Life Insurance) plans may allow a participant to access this type of feature.
Should the enrollee have a documented medical prognosis whereby he or she has a life expectancy of nine months or less, then they may elect to access a lump sum of cash from their FEGLI plan.
The amount of the lump sum that can be accessed is equal to the participant’s Basic life insurance amount, plus any amount of extra benefit for those who are under the age of 45, that is in effect nine months following the date that the Office of Federal Employee’s Group Life Insurance receives the completed living benefits claim form.1
It is important to note that when living benefits are accessed from a FEGLI policy – or from any life insurance policy – the amount that is taken from the policy will reduce the amount of funds that will be payable to the policy’s beneficiary at the time of the insured’s death.
In the case of living benefits on a FEGLI policy, an annuitant is not eligible to elect only a partial amount of benefit from the plan. Therefore, while an employee may opt to take just a portion of their insurance funds, if an annuitant elects living benefits, his or her survivors will not be eligible for any Basic insurance benefits at the time of the individual’s death.
More about Paul Kalra, CFP, ChFC, CLU:
Paul Kalra has been providing financial services for over 25 years to doctors, business owners and others nearing or in retirement. After a successful career with John Hancock Financial Services,in 2002, Mr. Kalra founded his own firm, Signature America Financial Planning Services, Inc. in Lake Forest, CA.
In his practice as a financial planner, Paul Kalra has found that when people are nearing their retirement years, they are faced with confounding decisions about their retirement plans, 401(k)’s, IRA’s, Social Security, Medicare, life insurance, wealth-preservation and estate planning. What motivated him to focus his practice on helping people in their 50’s and 60’s was when Mr. Kalra began facing such decisions himself and realized that the answers would have been very tough if he were not a financial planner.
Making Wise FEGLI Assignment Decision In Today’s Market
Making wise FEGLI assignment decision in today’s market
You may allocate your Federal Employees Group Life Insurance or FEGLI to one or more persons, firms or trusts. Task implies that you consent to surrender responsibility for Basic, Standard Optional and Additional Optional life coverage scope until the end of time. The trustee turns into the recipient yet you must keep on paying any relevant premiums.
There are three primary things you need to consider before going ahead with the FEGLI protection. To comply with a Court Order–You may make a task of your gathering life coverage keeping in mind the end goal to consent to a court request for separation. Doling out extra security scope to a previous life partner gives a way to guarantee the court that life coverage advantages will be payable to a previous spouse or his or her assigned recipient. Otherwise under the extra security law, a FEGLI protected individual may change his or her assignment of recipient whenever.
For Inheritance Tax Purposes– usually if a task is made no less than three years before a singular’s demise, the FEGLI protection is viewed as a “gift” to the chosen one, instead of a piece of the domain of the safeguarded. Current government domain charge law permits a boundless conjugal finding for that divide of the gross home went to a surviving partner. Along these lines, there is no obvious prompt duty point of preference to doling out responsibility for life coverage arrangement to a companion. Notwithstanding, since state charge laws shift and duty ¬savings under government or state law can be extensive if FEGLI protection continues are not subject to domain charges, it is vital to counsel an able home expense consultant. A determination in respect to whether the extra security continues are incorporated into your gross bequest should at last be made by the IRS. In endeavoring to decide the expense impact of a task, you ought to refer to tax duty laws, case law and IRS regulations. Likewise, you ought to think about getting as a decision from the IRS.
To Obtain Accelerated Death Benefits–You can dole out your extra security to a viatical settlement firm on the off chance that you are in critical condition so as to get a bit of the estimation of your disaster protection before your passing. Consider first whether you could achieve the same objective by choosing a Living Benefit, be that as it may.
A couple focuses to note are – By doling out your extra security, you surrender the privilege to assign recipients and to lessen the measure of protection scope (regardless of the fact that the expense is more than you can manage). Family Optional disaster protection can’t be appointed, in light of the fact that, by law, no one but you can be the recipient. On the off chance that you relegate your life coverage to more than one individual, you must indicate the rate offers for every individual. You are not allowed to name unexpected appointees in the occasion the essential chosen one predeceases you. In the event that the trustee does not assign a recipient, the chosen one is the recipient and will be paid after your passing. This is basically how FEGLI works.
FEGLI Verification of Life Insurance (VOLI)
First published on CompareFEGLI
FEGLI Verification of Life Insurance (VOLI)
Unlike individual life insurance purchased from private insurers, enrollees in the Federal Employees Group Life Insurance (FEGLI) Program don’t get a bunch of documents or a file mailed to them in the post with all their policy details.
Federal employees often forget details about their FEGLI coverage and options. Annuitants, beneficiaries and compensationers may not even be aware of the coverage, or may have forgotten about it. This is where it’s helpful to be able to see and print a FEGLI Verification of Life Insurance (VOLI) for your records. READ MORE…
OTHER FEGLI ARTICLES
Work With Local FEGLI Experts Through CompareFEGLI.com
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Using side-by-side Comparisons to Choose the Right Insurance Policy?
Easy to Understand FEGLI Calculator – Find the Right Insurance For You
FEGLI – How to Reduce the Costs of Your Life Insurance?
When to Use the FEGLI Calculator
First published on CompareFEGLI.com
When to Use the FEGLI Calculator
You won’t often be called upon to calculate your coverage amount and premium for your Federal Employees’ Group Life Insurance (FEGLI) life insurance.
There are three reasons why you might need to use the FEGLI calculator. The first time will be when you are hired as a federal employee, and then on the rare occasion that you get to modify your FEGLI coverage amounts and options.
For the record, this is only possible when there is a FEGLI Open Season, or when you are able to submit evidence of a qualifying life event (QLE) that makes you eligible to modified FEGLI coverage and options.
The third time you will need the FEGLI calculator is when you retire. FEGLI rates and coverage change quite a lot post-federal retirement, so you will need to know the changed premiums and reducing coverage amounts.
How to Use the FEGLI Calculator…….. Read More
Other FEGLI Articles
What is FEGLI Option A, Option B and Option C?
Evaluating your life insurance policy by Todd Carmack
Converting FEGLI to Individual Life Insurance After Separation From Federal Service
FEGLI vs. Private Life Insurance
First Published on CompareFEGLI.com
FEGLI vs. Private Life Insurance
Thrift Savings Plan There’s really no question about whether it’s beneficial for new federal employees to stay in the Federal Employees’ Group Life Insurance (FEGLI) program which they are automatically enrolled into. But it’s a good idea to know all your options, so perhaps you should take a look at the alternatives too.
In this case, the alternatives are private life insurance companies, so here’s a comparison of FEGLI vs. private life insurance.
FEGLI life insurance offers a lot of benefits, including automatic coverage for you and your family (if you opt for FEGLI Option C). The no-questions asked, guaranteed coverage is literally a life-saver for federal employees and their families if are older and/or have health issues and pre-existing diseases.
But in terms of price, private insurers are handily able to beat FEGLI premiums. Did you know ….. READ MORE
Other FEGLI Articles
What is FEGLI Option A, Option B and Option C?
Evaluating your life insurance policy by Todd Carmack
Converting FEGLI to Individual Life Insurance After Separation From Federal Service
FEGLI – Federal Life Insurance Living Benefits Guide
First Published on CompareFEGLI.com
FEGLI Life Insurance Living Benefits Guide
One of the things you need to know about the Federal Employees Group Life Insurance (FEGLI) program is the availability of living benefits.
FEGLI offers a living benefit to federal employees and retirees who are terminally ill with a medical prognosis of less than nine months in life expectancy.
If you happen to be in this unfortunate situation, you should know that there are different rules on how you can claim FEGLI living benefits, depending on whether you are still a federal employee or annuitant already in retirement.
For starters, you should know that the Living Benefit is equal to your FEGLI Basic insurance coverage. Current federal employees can choose between READ More….
USPS Life Insurance For Postal Employees Through FEGLI
Initially published on CompareFEGLI.com
USPS Life Insurance For Postal Employees Through FEGLI
USPS life insurance for Service employees is provided through the Federal Employees Group Life Insurance (FEGLI) Program.
The USPS will pay 100 percent of the cost of your Basic life insurance cover, and you pay 100 percent of the cost of optional insurance components.
Basic life insurance through FEGLI is equal to your salary rounded up to the next even thousand, plus two thousand dollars. Unless you explicitly waive it, new Postal Service employees automatically get signed up for Basic FEGLI life insurance cover without having to go through a physical or face any other eligibility issues.
FEGLI Options For USPS Employees & LiteBlue
FEGLI options include FEGLI Option A, Option B and Option C. FEGLI Option A – Standard provides additional coverage of $10,000. FEGLI Option B allows Postal Service employees to add coverage equaling up to five units or multiples of your annual rate of basic pay.
How Do You Know What Kind of Life Insurance To Buy
The life insurance (FEGLI) that comes as a part of the benefits from your job is generally the only life insurance most people have. Is it enough or is it the right kind. That is a big question and a very important one. One of the gaps HR professionals need to fill, is explaining to federal workers the difference between term and whole life insurance. Too many workers have life insurance and fail to understand how it works and if they really need it.
What is life insurance for? Sounds a little off. I don’t think so. If we are going to have life insurance then we need to determine why do we need it. We also need to determine if the cost of life insurance outweighs the benefit. Do you want the life insurance to replace income? Do you want to use life insurance for final expenses or will it be used as a way to create financial wealth for your family.
Once you determine your purpose for life insurance then you can begin determining how much life insurance you need and what you can afford. When and if you do purchase an life insurance policy, always remember to revisit the policy as changes in your life take place, it might be necessary to review the policy to see if it still answers your intentions.
Federal employees have term life insurance (FEGLI). Do federal employees need life insurance other than what is offered through employment? That is a question to ponder. The thinking should follow: Do I need life insurance? What do I need it for? What do I want it to do for me? How much do I need? Is the life insurance for me or my family?
We highly recommend that you speak with a knowledgeable financial professional before making any financial or life insurance decisions
P. S. Always Remember to Share What You Know.
