Child Whole Life Insurance: What Is the Attraction?
Real assets and savings – cash value – attract parents to the purchase of child whole life insurance. The cash value of a child life insurance policy (like any whole life policy) is the total money paid to a policy holder when such a contract is voluntarily canceled. Initial premium payments, in excess of true claim costs, provide surplus cash. This cash is invested by the insurance company, accruing interest. Law demands that these excess payments, plus interest, be made available to the insurance customers as cash value.
With each premium paid, the child whole life insurance policy’s cash value grows, which is an attractive proposal for many parents. Here, one invests money on a tax deferred basis in a consistent and disciplined manner through the use of monthly premium payments. At the age of twenty-one, the child can take over the child whole life insurance policy from the parents. The child then has options.
First, the policy could be maintained. The death benefit coverage would continue and would place your child in a better financial position. The cash value of the policy could be used as collateral against possible loans. Therefore, the cash value of the policy could contribute to your child’s overall effort toward higher life quality.
A different approach also exists. The child could decide to end the policy and receive the cash value in dollars and cents. This is typically done for educational purposes (paying for college) or for the down payment on a house. Again, a life upgrade – perhaps. But first, an important question must be asked. Just how much will that cash value be worth? A number of points to consider…
Look at the policy’s growth potential. Some policies have low cash value growth in the beginning years with rapid growth in the later years. Other contracts follow a more level growth rate throughout the years of the policy.
The interest rate is a key factor of growth. Certain companies base interest increases on the average interest earnings of all of their company policies, no matter the date of issue. Other companies base their averages only on policies issued in that current year or, perhaps, a specific group of years.
Administrative fees impact cash value worth. As usual, the consumer must shop for the best rates. Less popular companies should be given a good look. Their lower administrative costs usually lead to better dividend records and lower fees than the more advertised insurance firms. With careful analysis and shopping, the cash value of an insurance policy can be a significant contribution to your child’s economic future.
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