In my last post, I explained why I actually bought a permanent whole life insurance policy on my second child’s life, so I figured I would share the actual details of the policy itself. If you didn’t read the last post, there are two main reasons why I purchased whole life insurance on both of my children (fuller details in the post):
- I am not going to work if something happens to either child and
- Guaranteed Insurability – I have created a policy whose death benefit can increase without medical underwriting
My Child’s Life Insurance Policy
The basics:
- Approximately $50 a month for a current death benefit of about $132,000.
- A permanent product rather than a term policy because the term would not allow the “not so basic” explanation to occur
I hope to God I never see that $132,000, but if something were to happen to my daughter, that is enough money to allow me to grieve in a way that I see fit (i.e. not rushing back to my desk because I have to earn my next mortgage payment).
The not so basic:
- I included a rider that says if my daughter is ever disabled she/I do not have to pay the premium, yet the policy continues to grow normally
- I included a rider that guarantees that she can increase her death benefit from $132,000 to $1,132,000 without medical underwriting
Growth on my Child’s Life Insurance Policy
If you were to decide to look into this type of protection, I would recommend looking at some of the larger mutual insurance companies. Remember, hopefully this policy doesn’t pay out for 90+ Years! I want to make sure the company is likely not only to be around, but financially strong. Some of the larger mutual companies have been around for 150+ Years (MassMutual started in 1851, Guardian started in 1860, etc.) – one can hope they’ll be around in another 100 or so. I don’t think there is value in naming the company I used as I wouldn’t want to sway anyone other than to actually think about the financial move.
Cash Value Growth
| Year | Cumulative Outlay | Cash Surrender Value | Internal Rate of Return |
| 5 | $3,000 | $657 | -46.62% |
| 10 | $6,000 | $3,782 | -8.60% |
| 15 | $9,000 | $6,829 | -3.54% |
| 20 | $12,000 | $11,210 | 0.65% |
| 25 | $15,000 | $17,469 | 1.15% |
| 30 | $18,000 | $26,049 | 2.29% |
| 65 | $36,595 | $244,725 | 4.78% |
| 85 | $36,595 | $760,443 | 5.01% |
Death Benefit Growth
| Year | Cumulative Outlay | Death Benefit |
| 5 | $3,000 | $134,201 |
| 10 | $6,000 | $139,152 |
| 15 | $9,000 | $145,927 |
| 20 | $12,000 | $158,548 |
| 25 | $15,000 | $176,586 |
| 30 | $18,000 | $198,475 |
| 65 | $36,595 | $519,216 |
| 85 | $36,595 | $973,704 |
First, the above numbers are not guaranteed. But that is okay the market isn’t guaranteed either. So, in a fantastic world, Daughter hits the age of 30 and has a family or business (or whatever else makes her happy) and I hand her a policy where she can increase the death benefit without a medical exam, with cash value of $25K (so assuming inflation cuts the value in half I’d still take a $12,500 asset from my parents) and I bought a terrible CD/Bond with an IRR of 2%+ tax deferred. Worst case scenario something happens very early on, and for about the price of a monthly cell phone bill I can spend as much time as I need with my wife and son. This is obviously a HORRENDOUS scenario, but one where I can offload some of the financial risk (obviously not the emotional one).
