Toddler Life Insurance
Life Insurance for a Toddler?
I have a ten-month-old boy, and I have been receiving information on the Gerber Life Insurance Plan since before he was born! I want to know more about this plan, as it seems like a pretty affordable savings plan. Is it necessary to have life insurance on a toddler? And what's the best savings plan?
Instead of Toddler Life Insurance, Think About 529 Plans
I will start off saying I know nothing about the Gerber Life Insurance Plan, but I am against life insurance in general for children. I am an estate-planning attorney with a master in tax, so I have done quite a bit of research on this subject. Life insurance is a way for families to make it if one parent should die suddenly and the family is without the income. Life insurance can also be used for estate tax planning, as a way to generate the money needed to pay any taxes at death. Other than these two reasons, life insurance is not the way to go. Why does a child need their life insured? They will not be leaving behind a mortgage or mouths to feed. There are much better ways to save for a child.
Check out the 529 plans in your state. 529 plans are excellent savings tools for your child's education, which also have tax benefits. You and your husband could contribute $24,000 per year to a 529 plan (that is $12,000 each, which is the maximum gift a person can give each year), and the growth would be tax-free. Plus, if you have a second child, a second plan could be started for that child, with another $24,000 per year contribution. The $24,000 contribution is a cap, not a minimum. Most plans have a minimum contribution to start out, but in my state, that amount is only $250. Then when your child starts college, the money will be available to him or her when she needs it, instead of at their death. Even if you are thinking about the cash build-up in the life insurance, you money should grow faster in the 529 plan.
Also, look to see if there is any penalty to take the cash build-up out of the life insurance plan. With a 529 plan, you can always change the beneficiary without a penalty (as long as the beneficiary meets certain requirements).
Financial Aid Implication of Life Insurance
We too had toddler life coverage for our daughter (she's now 18). I mentioned that we had this coverage to the attorney I worked for at the time. She told me to cancel the policy, unless we were dependent on our daughter's income to support the household should she pass away. I canceled the policy. Now that we are applying for financial aid for her to attend college, I'm glad we canceled the policy. You actually have to list these types of policies as "student assets" on the Federal form.
Beth M. in Massachusetts
Tailor Your Savings Plan
Don't waste your money on the toddler life insurance. It's really overpriced and the chance that your child will not be able to obtain term life insurance much more affordably when he's an adult is slim. If the absolute worst happens, you will not need insurance for the traditional use of replacing income. I do have a $10,000 policy through work on my daughter to cover final expenses, but it's only $14.30 per year (55 cents every paycheck) and I can live with that minimal cost.
The best savings plan is to just save something every week! If you are talking about college savings, there are different options, such as the Coverdell plans, 529 plans (beware of the changes that will occur with regards to taxing the income starting in 2011 unless Congress makes changes), straight savings accounts, the stock market (good when your child is so young), I-bonds, Roth IRA, etc. You need to weigh the pros and cons of each type of offering with respect to your income, family situation, etc. There is not a one-size-fits-all solution to this; it needs to be tailored to you.
The Long-Term Benefits of Child Life Insurance
We just recently upgraded our life insurance since we really weren't adequately covered and we wanted to have insurance for our two boys (aged 2 & 4) should anything ever happen to them. For only a few dollars a month, our agent put a $20,000 rider for each of them on my policy. Since I am a non-smoker and in good health, it was cheaper to put it on mine instead of my husband's policy. Basically, if anything should happen to either of them, we would have enough to cover burial costs and wages if unable to return to work for a period of time afterwards.
Also, they can take over the policies when they are 21 with no medical questions asked. If they should become uninsurable in the future, they are already covered. We deal with State Farm Insurance in Canada, but I'm sure that most companies can do the same for you in the US or Canada.
Most people don't like to think about insurance for their child, but funerals are not cheap. Most of us would not be able to cope to go back to work right away. If you're careful with whom you deal and do your homework, you should be able to find a policy that is best for you and your child.
Amy in New Brunswick, Canada
Insider's Report: Better Savings Vehicles
As a former life insurance agent, I recommend against buying toddler life insurance. While the premiums are very low, the insurance proceeds are also low. Usually premiums must be paid for life. Life insurance is generally required for those who provide income to support the family. Toddlers do not generally provide financial support for a family; therefore, they do not require life insurance. If you want to save money for your child's future, there are much better vehicles, such as your state's 529 college savings plan, CDs, mutual funds and savings accounts.
Barbara in Wallingford, Connecticut
Reader Recommends Gerber Life Insurance
I have two girls, ages 13 and 11. I have had Gerber life insurance on them for about eight years. I have had a good experience with them. Their website is very informative, even allowing you to talk to customer service representative via instant messaging. They also offer cash value with your policy and I have been able to take out loans against the policy twice when we were in a financial bind. I would recommend trying them out.
Life Insurance is not an Investment
My husband is a licensed life insurance agent and he says insurance is not meant to be an investment. You should only have enough life insurance to protect your family in the event of a loss, and realistically, you probably only need it on the wage earner or hardworking parent at home. If your goal is savings for your child, you may want to look into CDs, money market accounts, or other programs that will pay a competitive interest rate. A local financial planner can probably be a big help.
Kendra in Cleveland, TN
Don't Pass It Up!
I am an absolute believer in life insurance for children. My perfectly healthy 19-year-old daughter contracted Hepatitis C from tainted ink. She had made sure the needle was new, but didn't think about the ink. I had recently decided not to get life insurance for her which was $129 a year because I thought I couldn't afford it. Now, that same insurance cost $769 a year! So getting one of those Gerber policies I think is a good idea. It is whole life, which means you can take the cash value out at any time, it doubles at age 21, and if something happens to your child to make them uninsurable, at least there is something in the event of their death to pay for funeral expenses and help out with missed work.
Also, my son-in-law's parents bought him a small child's policy when he was a baby. When he was 18, he was diagnosed with a blood clotting disorder, had a stroke, and was uninsurable. Because of that child's policy, he has $50,000 worth of life insurance for his wife and kids in case anything happens to him.
Because of my daughter, I bought life insurance on my two youngest sons too to maintain their insurability in case they did something stupid. One of those sons died unexpectedly when he was 19, and the insurance paid for his funeral and the missed work as a substitute teacher that I could no longer do because I had found out something terrible had happened while I was teaching. As a result, I had a real phobia about going back to school because of the emotional trauma that began there. Several months later I was able to go back even though I had crying jags whenever a student reminded me of my son.
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