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Some years ago I purchased Globe whole life insurance policies for my kids. It takes a few years to start accruing any kind of cash benefit. The face value of both policies is $20,000. 

It's not a lot should the unthinkable happen but by the time they turn 18 the policies should have a cash surrender value of a few hundred dollars.

Does anyone know if these policies accumulate interest? Going by the paperwork it looks like I can keep paying the premiums long after they turn 18.

I pay about $165 a year for both policies.

 

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Life is tough and it isn't always fair. My grandparents had 4 children and lost 3 of them. Two died at an extremely youn... (more)

BJGrolle (Mar. 08, 2017 @ 9:11a) |

Now I'm all paranoid and going to call Aflac.

jaytrader (Mar. 08, 2017 @ 9:41a) |

I agree that grief would affect people differently and is hard to predict. Some may even find some solace in work since ... (more)

Shandril (Mar. 09, 2017 @ 9:52a) |

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kids are financial liabilities, not assets.  Why would you take a negative expectation bet against the house to insure them?

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If you want life insurance for otherwise healthy kids, look at your employer. Thy may offer AD&D and/or insurance and could be cheaper.

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IF you read the policy, depending on when you started the policies, there should be a cash value table and near that should be a paragraph that answers your question. 50 years ago, it was 5%, I doubt that is your answer today with the FED rates so low so long.

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Standard WL requires premiums every year so you or someone will need to keep paying after year 18 to keep insurance in place. Likely by year 18 you still will have a loss compared to premiums paid.

Ask the company for an in force illustration to get a general idea of how the policy might perform over time.

These aren't good economic decisions to purchase.

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wow 40k for 165 a year, put that in their college funds

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Why do your kids need whole life insurance?

If your financial situation is such that you're worried that you can't afford funeral expenses then you've got much better things to do with your money.

If you're trying to build them a next egg for later in life then buy them stocks or even just treasury bonds. You're better off putting $50/year into a stock fund for them. They'd have >$100k each by the time they're in their 70's. Or like DamnoIT suggested invest in a 529 for them.

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The historical rationale/explanation/excuse for buying whole life insurance for kids has rarely centered on things like funeral expenses, nest eggs, etc.  Rather, it has centered on insurability: on the off chance that they would have some serious illness or injury that would make them uninsurable going forward, this would at least give them a certain amount of insurance.

I'm not saying I agree with that, but that was often the rational given.

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20k of death benefit isn't doing jack for an adult today let alone in 2-3 decades so paying all those costs doesn't justify it. Even plans that allow additional purchase are weak for that purpose.

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I can't think of any positive expected value situation for life insurance for a child that doesn't involve guaranteed issue for a very sick kid.

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I just recently found out that my wife's grandparents bought her a $5,000 UL/WL policy with Transamerica around the time she was born; I spent a decent chunk of time at the end of last year having ownership/beneficiaries transferred since my MIL was still the listed owner/beneficiary. Given the high interest rates in the early 80s, keep in mind her policy this is likely the IDEAL situation that WL salesmen will come up with and, from what I can tell, it still has performed VERY poorly.

The cash value as of today is about $33K; $5k invested in the S&P 500 index fund (with dividends reinvested) from the date the policy was purchased would be worth well over $150K today. For all this, the current death benefit is about $140K which, as dhodson mentions, is barely anything now that 30 years has passed.

The policy cash value continues to "grow" a couple hundred bucks a year due to a guaranteed return of 3% (purchased in the 80s, most WL policies for kids these days have a much lower guaranteed return), but this is largely nullified by the fact that the premiums Transamerica deducts form this "return" are about double what a comparable $140K term policy would cost my wife.

I plan to have my wife proceed with cashing out as soon money market rates rise to anywhere near 2%, and we'll likely owe the tax man to boot.

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dhewbiz said:   Some years ago I purchased Globe whole life insurance policies for my kids. It takes a few years to start accruing any kind of cash benefit. The face value of both policies is $20,000. 

It's not a lot should the unthinkable happen but by the time they turn 18 the policies should have a cash surrender value of a few hundred dollars.

Does anyone know if these policies accumulate interest? Going by the paperwork it looks like I can keep paying the premiums long after they turn 18.

I pay about $165 a year for both policies.

 


Cancel them immediately and quit throwing your money away.

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Randor said:   I just recently found out that my wife's grandparents bought her a $5,000 UL/WL policy with Transamerica around the time she was born; I spent a decent chunk of time at the end of last year having ownership/beneficiaries transferred since my MIL was still the listed owner/beneficiary. Given the high interest rates in the early 80s, keep in mind her policy this is likely the IDEAL situation that WL salesmen will come up with and, from what I can tell, it still has performed VERY poorly.

The cash value as of today is about $33K; $5k invested in the S&P 500 index fund (with dividends reinvested) from the date the policy was purchased would be worth well over $150K today. For all this, the current death benefit is about $140K which, as dhodson mentions, is barely anything now that 30 years has passed.

The policy cash value continues to "grow" a couple hundred bucks a year due to a guaranteed return of 3% (purchased in the 80s, most WL policies for kids these days have a much lower guaranteed return), but this is largely nullified by the fact that the premiums Transamerica deducts form this "return" are about double what a comparable $140K term policy would cost my wife.

I plan to have my wife proceed with cashing out as soon money market rates rise to anywhere near 2%, and we'll likely owe the tax man to boot.


I'd get an inforce illustration from the company and determine if it's WL or a UL.

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Hm, now I'm going to go do research on getting a policy for my kid. She was just born, and I'd rather not think about us burying her, the last thing I'd want to do if that were the situation would be to worry about her funeral expenses (should something happen to my job between now and then). Then again, tossing $300 or $600/year into some sort of mutual fund might be a better use of my money.

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jaytrader said:   Hm, now I'm going to go do research on getting a policy for my kid. She was just born, and I'd rather not think about us burying her, the last thing I'd want to do if that were the situation would be to worry about her funeral expenses (should something happen to my job between now and then). Then again, tossing $300 or $600/year into some sort of mutual fund might be a better use of my money.
You have a life insurance policy on yourself already? What about a disability policy? Both of those are way more important than a policy on a kid. Look insurance is suppose to be for the rare financial events that you cannot bare (not investment unless you are uber rich or have other tax reasons). And financially you you can bare the loss of a kid in fact it would likely improve your financial situation because kids are liabilities not assets.

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jaytrader said:   Hm, now I'm going to go do research on getting a policy for my kid. She was just born, and I'd rather not think about us burying her, the last thing I'd want to do if that were the situation would be to worry about her funeral expenses (should something happen to my job between now and then). Then again, tossing $300 or $600/year into some sort of mutual fund might be a better use of my money.
  
Put it into a mutual fund or 529 plan. Your kid will thank you one day. If, God forbid, you have to bury your kid before she can use a 529 plan, the amount you would have to pay because you didn't get life insurance on her will be the last thing on your mind.

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I'll be the third to say the same thing...
God forbid the loss occurs, some families feel guilt about any "blood money".
Insurance is to sell your risk to a third party, and investment is to buy exposure to returns you can't generate internally.
Throwing $1000 in an index fund in a kid's Roth IRA and forgetting about it is the best advice for any new parent.

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ThomasPaine said:   Throwing $1000 in an index fund in a kid's Roth IRA and forgetting about it is the best advice for any new parent.
  Well, you may have to wait a little past the "new parent" stage for the kid to have earned income for an IRA contribution.  But you can throw it in a UTMA and the dividends will be tax free under the kiddie tax rules for quite a while.

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xerty said:   
ThomasPaine said:   Throwing $1000 in an index fund in a kid's Roth IRA and forgetting about it is the best advice for any new parent.
  Well, you may have to wait a little past the "new parent" stage for the kid to have earned income for an IRA contribution.  But you can throw it in a UTMA and the dividends will be tax free under the kiddie tax rules for quite a while.

  What IRS auditor will argue against junior's scribbles and tic-tac-toe isn't a commissioned art?
More importantly, UTMA would be considered an asset for FASTA, if they go down that route.

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UTMA - you can use it to fund their IRA later on when they've got earned income but before they hit the college aid process.

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Life insurance is to cover your family should it lose in any way its capacity to generate income (be it disability or death). How much income do your kids bring in that you need them to have life insurance? That also sums up your need for this kind of insurance.

Statistically, the chance of kids dying before adulthood is relatively slim. And them dying prematurely is not a financial burden - even counting burial costs - considering how much that saves you in costs of raising them, sending them to college, etc. Instead put the premium money aside for their education or in an emergency fund.

The future insurability is also an empty claim. The vast majority of young adults have no need nor problem obtaining life insurance. And even the very few who develop a serious condition that make it difficult for them to qualify, the guarantee is too low to provide effective coverage for the rest of their life. Check how much guaranteed coverage they'd be entitled to, index that on inflation in 30 years (roughly divide by 2 assuming 2.5% annual inflation) and then compare it to your own life insurance needs. A drop in the bucket.

So you're paying for coverage you don't really need (no need for income replacement, cheaper to build up emergency fund/invest it), for coverage that's very unlikely to earn much nor ever be needed, and in the extremely remote chance that it is needed, that ends up being totally inadequate.

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What about life insurance for your pets? It's a pretty good bet you will outlive your children, but there is a very good chance your cat or dog will die in the next ten years or so. Have you planned ahead for that? You should be using your money for pet life insurance?

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Youngest daughter was a preemie and I wanted to make sure she'd have some life insurance if there were health issues later on.

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xerty said:   
ThomasPaine said:   Throwing $1000 in an index fund in a kid's Roth IRA and forgetting about it is the best advice for any new parent.
  Well, you may have to wait a little past the "new parent" stage for the kid to have earned income for an IRA contribution.  But you can throw it in a UTMA and the dividends will be tax free under the kiddie tax rules for quite a while.

  
I save for both my kids in a UTMA and also college.

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Shandril said:   Life insurance is to cover your family should it lose in any way its capacity to generate income (be it disability or death). How much income do your kids bring in that you need them to have life insurance? That also sums up your need for this kind of insurance.

Statistically, the chance of kids dying before adulthood is relatively slim. And them dying prematurely is not a financial burden - even counting burial costs - considering how much that saves you in costs of raising them, sending them to college, etc. Instead put the premium money aside for their education or in an emergency fund.

The future insurability is also an empty claim. The vast majority of young adults have no need nor problem obtaining life insurance. And even the very few who develop a serious condition that make it difficult for them to qualify, the guarantee is too low to provide effective coverage for the rest of their life. Check how much guaranteed coverage they'd be entitled to, index that on inflation in 30 years (roughly divide by 2 assuming 2.5% annual inflation) and then compare it to your own life insurance needs. A drop in the bucket.

So you're paying for coverage you don't really need (no need for income replacement, cheaper to build up emergency fund/invest it), for coverage that's very unlikely to earn much nor ever be needed, and in the extremely remote chance that it is needed, that ends up being totally inadequate.

  

This isn't about income replacement. Until it happens, god forbid, nobody knows how situations will develop. The loss of a kid could also cause the loss of a job if one or both spouses simply couldn't return to work because of grief. Having a larger policy payout isn't just about paying for the funeral it's about having a cushion for everyday bills for a bit.
 

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dhewbiz said:   
 
  

This isn't about income replacement. Until it happens, god forbid, nobody knows how situations will develop. The loss of a kid could also cause the loss of a job if one or both spouses simply couldn't return to work because of grief. Having a larger policy payout isn't just about paying for the funeral it's about having a cushion for everyday bills for a bit.

  
Life is tough and it isn't always fair. My grandparents had 4 children and lost 3 of them. Two died at an extremely young age. I know they were terribly grief stricken at the time. I grew up hearing the stories. It affected them in ways you can't imagine for the rest of their lives. My grandfather was the breadwinner. If he didn't work, he didn't get paid. They wouldn't have eaten or had a roof over their heads for very long. In short, you do what you have to do to go on.

Any reasonable employer should be sympathetic enough to give some reasonable time off. It shouldn't result in the loss of a job.

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Now I'm all paranoid and going to call Aflac.

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BJGrolle said:   
dhewbiz said:   
 
  

This isn't about income replacement. Until it happens, god forbid, nobody knows how situations will develop. The loss of a kid could also cause the loss of a job if one or both spouses simply couldn't return to work because of grief. Having a larger policy payout isn't just about paying for the funeral it's about having a cushion for everyday bills for a bit.

  
Life is tough and it isn't always fair. My grandparents had 4 children and lost 3 of them. Two died at an extremely young age. I know they were terribly grief stricken at the time. I grew up hearing the stories. It affected them in ways you can't imagine for the rest of their lives. My grandfather was the breadwinner. If he didn't work, he didn't get paid. They wouldn't have eaten or had a roof over their heads for very long. In short, you do what you have to do to go on.

Any reasonable employer should be sympathetic enough to give some reasonable time off. It shouldn't result in the loss of a job.

I agree that grief would affect people differently and is hard to predict. Some may even find some solace in work since it may take your mind of the tragedy. I know a coworker for whom that was the case after the loss of his 1 yr old son. He was allowed to take any amount of paid and unpaid leave he needed but eventually did not take much.

 And the statistics just don't make sense. Everyone should anyway have an emergency fund to cover unforeseeable life events, unemployment, etc. That should cover this situation as well. 

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