This is a question I am often asked, and through my early professional years I had a pat answer. Here’s what I said. The most important thing you can do for your family is to insure your life. In the event of your death, your income comes to an end. Moms and dads should own the maximum amount of life insurance possible. Why? Because after a death, I have never met a loved one who said their spouse owned too much life insurance. In fact, it’s often the other way around. The lesson was learned too late.
Life insurance is not about ‘needs,’ as ‘I need to buy life insurance.’ Life insurance is about ‘wants.’ I want my family to live the life I had planned for them. I want them to live in the house I would have chosen, the neighborhood I would want them to live, attending the schools I would have wanted them to aspire to, and receive the training to have the opportunity to have careers to take them, my family and my future grandchildren yet to be born to continue to make a difference in society, as givers and not takers. I want this for my family. If I plan my life insurance around ‘needs,’ I am probably a taker, not a giver.
Once we have mom and dad taken care of, by insuring them to their maximum life value, then we can visit about the need for life insurance for the kids, or at least that’s what I once said. But there we are again with the word – need. Who needs life insurance on a child, unless your kid was a movie star making a ton of money in Hollywood? Well, that’s probably not your kid and it’s definitely not mine.
Yet, I would add into the conversation the following sentence: I insured both of my children within weeks of their births. I didn’t do this for fear of their death. I did it because I knew the numbers. I know how a well-designed whole life insurance policy allows money to grow safely throughout the years, tax-deferred, which could be accessed when it would be needed in the future. When it came time for my wife and I to purchase our first home, it was two child life insurance policies on our lives, which became our down payment. Life insurance, hence changed our ‘lives’ forever by providing a head start on our home.
Here’s how I feel about life insurance for children today: after a generation of experience. Odds say that a child won’t or at least shouldn’t die, but they do. It’s not about the burial for a child. Worst case, family and friends will automatically take up a collection for your child’s burial. Here’s the true strength of life insurance policy on a child: How are you going to cope after their death? Think about it and only for a moment, because it’s too upsetting to think of it any longer. If you lose a child, what happens to you? If you’re self-employed or not, will you want to get up and continue to go to work after your loss? How long will it take for you to accept your loss and become part of the new world you are now living without your child?
I see life insurance on a child, as protection for the family. After the loss of a child, many marriages end in divorce. Had they had the resources for time and counseling, would as many of those marriages actually have ended? Instead, society forces us to move on. How are we supposed to pause without the financial support that requires us to get back to work as soon as possible?
I also believe it’s important that if a parent owns a life insurance policy on a child, to hold onto that policy as long as possible. This won’t come as a surprise to most parents, but kids today in their 20s and 30s are less assimilated into the responsibility of adulthood as we were 30 years ago. They’re going to school longer, waiting longer to become established in their careers and are waiting longer to marry and to have kids of their own. Because of these delays, they are also behind in taking on the responsibility of making sure they have fully insured themselves for the possible mishaps in their own lives. So, I tell parents: do not give your children their life insurance policies after high school or even after college; because they don’t understand the value of these policies yet.
Instead, keep the policies in your hands. Remember mom, remember dad – you paid for these policies. We only used the kid’s lives in which to begin these plans. The money is yours. Once your adult children have their own act together, take the policies for all I care, cash them in, go on a trip to Cancun! But until that day happens keep this asset, because you just don’t know how it’s all going to play out.
Recently, the parents of a child who I had placed life insurance on 30 years ago were in my office due to the unexpected loss of that child. The policy was issued on a one year old, but it was now needed for the loss of life of a thirty-one-year-old. It was the first child policy I ever completed a death claim on. Life insurance is a known asset, guaranteed to be paid at the exact time it is needed.
I did the correct thing 30 years ago when I wrote the application for that policy. I did the correct thing today, making sure that policy did exactly what it was supposed to do when that unexpected time arrived.