Episode 72: 5 Reasons to Get Life Insurance for Your Children

Acquania Escarne 0:00

All parents should insure their kids with life insurance before it's too late. Tune into this episode where I'm gonna share five reasons to get life insurance for your kids.

You are listening to The Purpose of Money Podcast. A podcast where we talk about ways to build wealth and create more freedom in your life today. I am your host Acquania Escarne.

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Hey, guys, welcome back to The Purpose of Money Podcast. I'm super excited to have you today. But it's going to be another solo episode with me. And we're going to be talking about why you should insure your children. So I'm a parent, I have two boys and this is something that's really important to me because as a life insurance producer, I discovered not only in my life, but in other parents lives, that you can't always guarantee that your children will be able to be insured with life insurance. And I'm actually a parent who one of my children is uninsurable. And I've had to find creative ways to provide for him and his future. And I'll do an episode on that, I promise but that's not what today's episode is about. Today's episode is going to be about life insurance on kids and why I made the decision as a parent to get a life insurance policy on my oldest son, who is now 11. So a few years ago, when I got licensed for life insurance, I already understood the power of life insurance because I read books about it and it was actually part of the reason on why I decided to become a life insurance producer is because I saw how useful it could be in building generational wealth and leaving a legacy. But once I became a producer and I actually saw how children policies work, I was really impressed by how you could get in for such a low cost and provide such a high value to your children in the future, all while providing them a real product that protects them and their future and their family's future in the event the worst happens. So, a few years ago, my husband and I agreed that we would invest in a life insurance policy for my oldest son because I wanted to have an alternative way to save for his future. So, I first before I get into that story, I want to kind of highlight reason number one, right? On why you should get your kids life insurance. So like I said, I have a son who's uninsurable and unfortunately, he's uninsurable because of health issues that manifested when he was first born and also after he was born. And now with multiple disabilities he's just not a candidate that most companies would insure. So that's the situation with my youngest son. My oldest son is a typical healthy boy and he would be able to qualify for insurance. But I just needed to talk to my husband make sure he was okay with it and find an amount that would work for our household budget. But as parents, you know, we always want to provide for our children's future. And ideally, we want to outlive our children, right? So let me be clear, I didn't purchase life insurance on my son, for the sake of, you know, benefiting in the event of his death. But, that is something that could happen if God forbid, my son passes away before I do. And that is something that, you know, I understand, and I realize, but, that is a main reason that people don't want to think about but it can be valuable, because the loss of a child can be devastating by itself. But being able to take the time to grieve and not have to worry about finances or even paying for their final expenses, because they had life insurance is definitely a reason to get life insurance. But I know for most parents and the ones that I work with, that's not the number one reason, right? The number one reason is because we know that if we give our children life insurance, while they're young and healthy, and insurable, we're guaranteeing their ability to leave a legacy to their future family, because children policies are life insurance policies, and they're going to carry on with the child who becomes an adult, and continue to be available to them as a life insurance right policy. And so when they're an adult, you can actually transfer ownership to them. And then they can decide if they want to leave that policy to their spouse or their children, right? So you're providing a gift to help future generations. And the reason I keep saying it's a guaranteed way to leave a legacy is because life insurance is paid out when someone dies and we all know that we're gonna die one day, and policies for children, unlike adults, are not term policy. So for those who don't know, I just want to take a quick second to explain Term Life Insurance versus Permanent Life Insurance. So at least you know, the two types, and then you can better understand what children get, okay? So Term Life Insurance is temporary, it expires, and it's only valid for a certain amount of time, normally 5, 10, 15, 20 years, 30 years max, in most cases, and you're paying that premium for the duration of the term. And if you die during the term, the life insurance company will pay out to your family. If you live beyond the term, you don't get any money. And most of the time, you don't get any money back either.

Whereas Permanent Life Insurance is the forever insurance, you know, once you get it, it covers you for the rest of your life, as long as you pay the premiums according to the contract you have with the company. So it's a great way to cover someone at a young age or when they're young and healthy. And then ensure that whether they die at 99, or 85, they're going to get life insurance passed down to their family or whoever they decided to leave it to. So when it comes to children, no company is giving children term life insurance because they're not going to put an expiration date on a policy for a child, but they are going to give you a policy that can last for the rest of their life. And they're going to give it to you at a very, very affordable rate. So, the first reason most parents will get a life insurance policy on their children is because they want to provide that guaranteed legacy for their future generations. They're providing that child's family and their families, children money in the event the worst happens but money to carry on to leave a legacy to pay for finances and to protect their future and their income. But also allowing time to grieve if something happens and the person whose insure passes away. But the second reason, which is actually more common, and the one that my husband and I really leverage was to have an option that was an alternative to a 529 plan. So for those that don't know, a 529 plan is a plan in which you can save for your children's educational expenses. Normally college but you can also use 529 plans to pay for kindergarten through 12th grade if they go to an institution that may require tuition or some type of payment. And it's called 529 because in most states, that's the law, you know, in the books that created these plans, and each state is allowed to create their own 529 plan and provide their residents the benefits that come with those plans. But, the cool thing is like you're not obligated to use your state's plan. So I'm a resident of Virginia, I do have a Virginia 529. When I was a resident of Maryland, I invested in the Maryland 529 plan because both of those plans are in a top 25 plans in the US. But say you live in a state that doesn't have a great 529 plan, maybe it's not managed by the company, or it doesn't tend to have a good performance because this money is normally invested in the stock market, you could choose to invest in another state's plan. The benefits to investing in your state's plan is normally you're gonna get some type of tax deduction for investing in your own state's plan. But that only applies if your state actually charges, you know, income taxes. For example, in Texas, there's no deductions because Texas doesn't tax your income. So it really depends on where you live but the point is, a 529 plan is a great way to save for future educational expenses. And when you do so a lot of times that money grows in the investment account, tax free. And then when you use it on eligible expenses, you don't pay taxes on the withdrawals either. And then a lot of 529 plans, there are options to pre pay for college, or to put money in an investment account that grows and then your child has the option to go to any college, not necessarily the ones in your state.

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Now those are great for tax purposes, my husband and I contribute to the Virginia 529. Because we want to take advantage of the Virginia tax deductions. But once you've put in $4,000 into a 529 plan, you don't get any more benefit from a tax perspective for doing so. So I leveraged life insurance on my oldest to use it as a means to invest additional money that we could afford to invest. But it's going into a life insurance policy that is not volatile, when the market is changing. So he gets interest. In some cases, he's earning up to 12% on his account. But when the market is very volatile, and the life insurance company has losses in the market, they don't take any money from the cash value that's built up in his policy, they just may not pay interest that year. But honestly, since we've had the policy, we've never had a zero interest here. So I've never had to experience not getting any interest. But before COVID, when the market was really strong, we've seen up to 11 and a half percent return on his policy. And we've been able to put money aside for his future. The benefit to this is, one, we have this additional nest aid, right, that's earning interest regardless of the stock market and what's happening in the stock market. But it's also protected from losses because it can't lose money, right? As long as you have the money there, your cash value will remain at that balance. And the interest is what actually increases the balance. And then when we do decide to take some of that money out or when my son decides to take money out, he is able to take it out tax free when he takes it out a certain way. So we leverage that opportunity because we weren't quite sure if our son would want to go to college, or what if he went to college and he got scholarships and therefore didn't need this money we saved for college, what would we do then? So we wanted to have options. We wanted to give our son options so we created this life insurance policy. And he can leverage that money for non educational expenses. Like say he wants a car in college or maybe he wants to buy a house and rent out the rooms to his college roommates. These are all possible options for him and so the cash in his life insurance policy can be leveraged to pay for college, that's non educational college expenses. It could also be used to pay for a house a down payment on a house, or it could be used to start a business, which I don't know my son might be able to do, because he's an entrepreneur at heart, he's sold rocks out of my garden, he sold food out of my refrigerator, I'm gonna tell you, my son can sell you anything, I mean, anything and this joker will take the stuff, sell it and then not even give you a cut. So he's like a true, true entrepreneur. So I definitely wanted to give him option. So reason number two for getting life insurance for kids is to create an alternative way to save for their future that is outside of a 529 plan. But the other reason we did it is the third reason that I want to highlight is locking in your kids insurability. So life insurance, no matter your age is always going to be based on your gender, your age and your health, right? Whether you're a kid, or whether you're an adult, and your health is going to be a factor that can truly affect how much you pay for insurance. So if you have a history of health issues, or you have a, accident and now that's impacted your health, you'll find yourself paying more for life insurance, because now you're a greater risk to insure. But in addition to that, you might have family medical history issues, that also will impact your insurability and or the price you pay for insurance. So one of the things I like about getting policies on children is that you are guaranteeing that they are going to have insurance as long as you pay the premiums because you've gotten the policy when they were young and healthy. And I actually have a client who, unbeknownst to them, they did the right thing, they got their child a policy. But then the child later developed health issues that makes the child uninsurable now, and they are not clear that the child will ever qualify for insurance. I always tell people we never know for sure because with advances in medicine, in medicine, and all the things that they're able to do, there's a lot of things that might be uninsurable today that are insurable in the future if medicine is able to advance to a position where that condition becomes something you can live with, or that you can maintain your health and your quality of life with but maybe we need more time for scientists and doctors to figure it all out, right? So I don't want to say that the child is never going to be insurable. But at this time, they, you know, have explored trying to move the life insurance policy to other companies so that they can all be under one umbrella policy, for example, or one company, for example. And they haven't been able to move this policy because of the child's health conditions. So you never know, when someone is going to become uninsurable. In this case, it was a child under the age of 10, that they never thought this would happen to but they also didn't know that the child would develop health issues. That happens to be, you know, rare and very unique. But that can happen to anyone, right, anyone can suddenly develop a health issue they didn't have before. And that health issue could impact your insurability. So you know, children are allowed to get policies in some cases, as young as one month or two months old. So if you have a healthy baby, and they are pretty much progressing, well, you may want to consider insurance at a young age, but definitely talk to a life insurance producer and see what's best for you and your family. Because you never know about 5, 6, 7 or 8, they may develop a health issue that makes it more challenging for them to get life insurance. You know.

So, reason number four is something that I want to talk about, but I gotta explain it first, right? So the fourth reason I would give life insurance to children is because they get living benefits in the event that they get coverage, right? So living benefits is just a nice way of saying if something happens to them health wise and that policy has a language in it that says if you develop this medical condition, we'll pay monthly or a lump sum of money, then that benefit is extended to children as well as a benefit that normally adults will use. But God forbid something happens to your child, if the life insurance company gives living benefits to policyholders and your child's a policyholder, they will get those living benefits too. So some of my companies will pay you a monthly stipend. If you have a chronic illness, that impacts your quality of life and your ability to do certain things, which can be really helpful if you develop a disease or condition that affects your ability to feed yourself, bathe yourself, dress yourself, take care of yourself, maybe now you're suddenly having to hire help to facilitate a lot of support you need around the house. With the right policy, your living benefits could cover some of those costs. And even though their children because the life insurance includes this in the contract, they get living benefits too which they more than likely will use as adults, right, because 65% of adults will have some type of health issue that requires assistance or support. And when you have the right types of disability insurance life insurance in place, you then do not have to use or liquidate your retirement savings or your personal savings in order to cover the costs of these medical conditions. And this is really important because most people don't realize this, but the number one reason for bankruptcy in the US is not consumer debt. It's not people who've spent too much on their credit cards, and all of a sudden, they want a break because they can't get from under the bills. Most people file bankruptcy because of medical debt, because of health issues they never saw coming. They weren't prepared for financially. And they had literally utilize everything they had before they resorted to bankruptcy to pay these bills or to get rid of the bills because they couldn't pay them anymore. So I always tell people, you know, give yourself options to handle what might happen. You know, life insurance is for when you might die too soon, or have health issues that affect your ability to live or your quality of life. So by giving your kids a policy that includes living benefits, you're also giving them options that can help them pay for unexpected medical issues in the future.

And the fifth reason, which I love, because I'm always going to come back to what is this going to cost me is the fact that when you insure young and healthy children, the cost of the insurance is very low. I've had some families be able to get policies for as little as 20 to $25 a month. And I've had other families if they want to be more aggressive, and they want to build a lot of money in the cash value. So they can leverage that in the future, they may choose to pay $100 a month, whatever it is that you are choosing to pay, that price is locked in. So when your child is 3545, or 50 years old, they could still have 1000s of dollars in insurance for as little as 25 to $100 a month, which for me is like unheard of.

And for a lot of people, they can't get those rates as adults, because as adults, they developed smoking habits or risky lifestyle or driving record or criminal record. And now they're suddenly unable to get low low rates. So the fifth reason to get coverage on your kids is to lock in that low rate. Once they've signed up for that the contract says it's going to be $25 a month, it's going to be $25 a month. Sometimes you can even cut off payments at a certain age so that the policy is paid up and doesn't require any additional payments after that specific date or age. Right. So these are just a few reasons. If you're interested in getting a life insurance policy for your child, I definitely encourage you to contact me at the purpose of money.com and set a free consultation.

I'd love to talk about your situation and how I can help you and whether or not a policy for your children makes sense for them and for your budget. You're also welcome to send me a DM on Instagram. I'm at the purpose of money. I'd love to set up a chat through DM to talk about your insurance needs. But I will say I will present to you your options and allow you as a parent to make the decision that's best for you. But these are just some of the reasons on why it's beneficial to get a life insurance policy for your kids before it's too late. So I hope this episode was helpful. If you have any questions, feel free to email me at info at the purpose of money.com. I'd love to address your questions. And if you liked the episode, and you're listening on Apple podcasts, I would love for you to leave a five star review. And so next time keep building generational wealth.

Thank you for listening to the purpose of money podcast. For more resources and information, check out my website the purpose of money.com and while you're there, please sign up for our newsletter so you have the latest information on new episodes and blog posts. Until next time, keep creating freedom in your life today.

Transcribed by https://otter.ai