Give your Kids a Jump Start in Life.
Wouldn’t it be great to secure a future for your kids with at least one financial guarantee?
To know you can create possibilities for them that will be there when the needs arise?
To know that you have provided them with an added cushion to help weather possible storms?
The concept of Cash Value of Participating Whole Life Insurance may not be the first financial concept you might have entertained for your children, but I know from personal experience that if it had been provided to me I could have weathered some unforeseen events a little smoother…
In a nutshell, when funded from a highly credit rated Insurance Company, giving a child a Participating Whole Life Policy sets them up with cash and death benefits that grow tax free in their Policy.
Participating means that Whole Life Policies pay dividends to Policy Holders; Policy Owners participate in the profits generated by the Insurance Company. Although dividends are usually not guaranteed, some companies have paid them every single year for over 160 years, including during the great depression!
You can, for instance, fully pay up your child's Policy in 10 or 20 years and be done with all your premium payments; and the Policy's cash and death benefits will continue to grow.
Sharing with you today the idea of “giving your kids a jump-start in life” is one that gives your kids an extra financial cushion that can be used for any number of possibilities.
For instance, with purchasing their first car or home:
Sometimes that perfect car or home comes on the market and the timing for having that needed cash just doesn't coincide. If only that great opportunity would still be there a few months or a year later.
The cash benefits of having a Whole Life Insurance Policy I find are very rarely discussed in the media.
It's like a SECRET SOCIETY... the few who know all about its value CONTINUALLY USE IT and don't share how they are one-up on having cash available!
When many of us need short term liquidity/cash we usually look to one of the 5 options mentioned below:
credit on your credit cards, often with double-digit rates
home equity loans, taking out additional debt on your home
401K loans, paying back yourself but losing out on interim earnings
security based loans, a little risky and
banks that are now coming up with new short term loans and interest rates that are still high
No one ever mentions the low cost, ease and flexibility of taking out a Whole Life Insurance Policy Loan.
So it's no wonder that unless you already have Whole Life Insurance in place, you would even know that this type of credit is available.
So let's take a look at what value giving your child a paid up Whole Life Insurance Policy can provide.
Let's talk about a scenario in which you take out a $500,000 Whole Life Policy for your new born child. You choose a Policy where you make yearly premium payments of $3,900 for 20 years with a total cost of $79,600.
Years have gone by and your child is now 51 years old. In this scenario the cash, within the Policy has grown tax-free to $591,700 and the death benefit has grown tax-free to $1,637,789. Your child can either surrender tax-free the total amount of premiums that were paid into the Policy or take out tax-free loans in the amount of the total cash value of the Policy.
With either way of taking cash out of the Policy, the amount taken out would be subtracted from the death benefit; still leaving a death benefit that has grown substantially since the initial Policy value of $500,000.
With Policy Loans you have the ability to pay them back, thus reinstating all or part of the cash and death benefit. That way, the cycle of having cash available can continue for their short term needs.
Not bad for an investment that you didn't need to adjust according to the winds of the markets.
Let's work with an example in which your child takes out a Policy Loan of $35,000. A bonus is coming due in February and they can't wait to purchase that new car.
Using this scenario your child takes out an Adjustable Rate Policy Loan on their Whole Life Insurance Policy; the Adjustable Rate can change yearly. One highly respected Insurance Company's annual Adjustable Rate has held steady at 5% for many years.
So here's an interesting fact: when you take out a Policy Loan, the money for that Loan is not removed from the cash in your Insurance Policy; the Loan itself comes from the Insurance Company. The cash in your Policy is pledged as collateral for your Loan. If you do not pay back the Loan the Insurance Company simply uses the collateral, which is the cash, to pay back your initial Loan along with the interest that accrued.
The above point is also significant for something called "Non-Direct Recognition". Here the Insurance Company will continue to pay out the same dividends to your child's Policy regardless of the amount of the Policy Loan they took out.
So to conclude with this example: Insurance Company X's dividend is paying 6.7%. The Insurance Company will continue to pay out the same dividend to your child's Policy regardless of the $35,000 Policy Loan they just took out. With an initial Policy Loan Rate of 5% the cash and death benefit in the Policy will continue to grow while paying back the Policy Loan.
It’s all about planting a seed today that they can harvest and reap the benefits years into their futures.
The two simple facts about Whole Life Insurance, when placed with a highly credit rated Company, are:
As the years go by there will be nothing for you to do to insure that the Policy will behave as planned.
There are very few Investments that can make that claim.
The peace of mind in knowing you’ve set something up that regardless of market conditions, you have a plan in place in which you don’t have to worry about reviewing it to ensure market adjustments is one of the products most overlooked features.
Many of us might just be familiar with the basic premise of having Whole Life Insurance to provide a financial safety net for loved ones when the Insured dies. That is still an essential part of the policy. Whole Life Insurance simultaneously has Living benefits attached to it.
I look at Insurance products as a great hedge against risk.
As one component in your financial portfolio it can help you balance, the risks you need to take in order for your portfolio to grow and ensure that your portfolio can weather the volatility of the markets.
Let me stress, Whole Life Insurance is just one portion of your diverse financial portfolio. Without it when the markets are down you may find yourself liquidating assets because you need cash versus letting those assets weather the financial storms and eventually recoup their values.
When It comes to Whole Life Insurance the credit rating of the Insurance Company and how they determine their dividends is crucial along with the dollar amount of assets they have in their portfolio to support your Policies.
Let’s get back to the initial premise of my post: "Giving your kids a jump-start in Life".
Creating a Whole Life Policy for your child when they are an infant; making premium payments for 10 or 20 years you will incur lower premium payments versus waiting to start paying for a Policy when the child is older.
Life as I found can change in an instant. So, consider starting a Whole Life Policy when a child is younger and hopefully healthy versus waiting until they are older just makes good financial sense for both you and your child.
Whole Life Insurance has a wealth of living benefits that children can enjoy throughout their lives.
Help your children to become their own bankers; where they manage and have available more liquidity and cash flow options for their futures:
helping with the down payment for their first home or car
smoothing out monthly income if they are dependent on commissions or a year-end bonus
paying for a life saving treatment their health insurance may not provide
unexpected expenses that weren't budgeted
an illness that prevents them from working short-term
not having to liquidate their hard earned assets during unexpected market swings, giving their portfolio time to recover and
providing the initial capital needed for a new venture start up
Whole Life Policies can give you the peace of mind that you have helped your children have available more liquidity and cash flow options for their futures.
I look at Insurance as being a great hedge against risk.
We have no control over the financial markets and how they will impact our investments. Surprises in the markets will invariably happen.
One of the living benefits, of working with highly credit rated Insurance Companies, is the tax free growth of cash that accumulates along with a death benefit in your policy. Popular Polices are ones in which you pay premiums for a limited period - for example 10 or 20 years.
Take a few moments to visualize a larger possible financial picture for your child:
What are your dreams for your child?
What financial cushion would you like to know will be there for your children for the unexpected?
Social Security may not exist as we know it for your children; wouldn’t it be nice to know you helped them create another avenue of retirement income?
Debra K. Bedell
Insurance - a great Hedge against Risk.