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Whole life Insurance for myself and kids worth it? or better invest elsewhere?

11385 Views 28 Replies 13 Participants Last post by  ssimps
Hi guys,

I am 32 years old and just finished paying off my mortgage. I have no life insurance and not much in RRSPs yet, but have a good amount in savings account. I have 4 children and my dream would be to leave them with at least one million each. I would prefer to leave them this amount before I pass away so I can see them enjoy it, but I am not sure it will be possible.

I was looking into a Whole life Insurance policy for myself with a quick pay 10. So basically it would cost me $9.5k/year for 10 years and after that I would have protection all my life for a million dollars. I am trying to understand if this is worth it or if I could make more investing in something safe myself.

I was also thinking of starting a policy on each of my children which would roughly cost about $4k each per year for 10 years and then no more payments. This is also 1 million each, but will it be worth anything in 70 or 80 years when they die?

We are looking at about 24k/year in insurance policies for the next 10 years here accounting to 240k. I don't have a mortgage to pay anymore which makes it much easier to afford, but it is not a small amount either. I would have to tighten my belt a bit on other stuff, but if it would be worth it in the long run, then I would definately be prepared to do it. Obviously the insurance agent is going to try and sell me as much as he can, but I would love the feedback from the rest of you here that have setup something similar or thought of it and then decided not to.

Am I better off taking the 16k for the kids or 24k for all and investing it elsewhere. Can I end up with more money in the long run? Please keep in mind I want this to be a safe investment so I definately will not get 8% returns in my opinion, but let me know your thoughts/advice anyway.

Thank you.
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"Having the kids pay the premiums is a fairly common strategy,"

No it is not. It's make for an funny commercial by an investment company that has no idea what they are doing, but please understand, almost no one does this. The problem is three fold.

1) First, if you have 4 children, I will almost guarantee you that at any given time, at least one of them will have difficulty putting aside money for this due to their financial circumstances and because of the next reason.

2) If your children are 25 or so and supposedly ready to make some premium payments, the parents are usually around 50 to 60. They have probably another 30 to 40 years before this plan pays the children anything and it is simply too long term for at least one of your kids to direct his/her needed money towards.

3) All the benefits of this plan come to them on the day their parent/s die. That is a day most kids have set aside to be sad and they emotionally attempt to prevent anything from interupting that (there are exceptions to this of course, but very few and I hope those exceptions are not your children).

My advice to you. Forget the whole idea. By the time your children receive this money their financial condition and personalities will most likely be ingrained. Sure anyone would appreciate $1 million dollars at almost any age, but younger than 60 would be more useful. Even as a retirement plan for your children, it does not have a guaranteed vesting date (although it could have, that depends on your conviction to it. I am kidding here)

Good luck to you.
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mcu, from reading this post I have to commend you for having very worthy goals and care for your family. As for advice, you've received some great advice already from some people that really know what they're talking about. I share the sentiment that Term is the way to go and at the same time increase your RRSP contributions.
Not too many responded to your idea about insuring your children. Unless they owe you a lot of money why would you do it? It used to be fashionable for parents to buy insurance on minor children to make sure there would be money to pay for a funeral. But in your income bracket it doesn't sound like that is likely to be a problem.

(All this insurance would make a good plot for a murder mystery though.)
I am not looking to profit from my kids. I am just trying to make it easier on them. For example, I am stressed or thinking of ways I can make my money grow so I can leave to my kids when I go. If I had a policy of a million bucks, then I would not have to worry about that and enjoy my money today at a much fuller extent. I could literally blow every penny I had, as long as it lasted me through retirement.

This was my way of thinking when I was considering life insurance on my kids
Well, one of the few worthwhile uses for whole life insurance is estate planning. So you may be among the minority who would have a use for it. But do some reading on consumer advisory books about insurance, and search some of these forums for opinions. The "return on investment" for whole life is poor compared to investing yourself, unless you die young. If you are seriously considering spending that kind of money on insurance premiums, I would suggest talking to an estate planner who is not an insurance agent to investigate other options.
The purpose of life insurance is to replace you if you die, and therefore take care of your dependents needs without your annual income. It is a lousy way to "invest". Term is waaay cheaper than whole life and you can get a lot more bang for your buck. The only people who think whole life is a good idea are people who sell careful.
I got sucked into to insurance buying thing 10 - 15 years ago when I was just starting out and had little $ in the bank; the feeling of having a safety net for my wife and our to be kids (3 now) was very attractive. I likely went overboard though, getting term and UL policies for both myself and my wife, and getting a whole life policy for each kid when they were born.

Now we have enough $ saved so that if my wife or I die, there is enough $ to last the remainders for 20 years or more based on current spending. So now I'm not sure about whether the policies are worth keeping. Is it just throwing good $ after bad?

I'm thinking of dropping the kids whole life and our term, but keeping the UL as the extra cash we can put in it does generate a guaranteed 5% interest rate tax free / deferred. When we 'retire' and don't want to pay the minimum premiums, we can dump that too.
Update: As of yesterday I canceled our 3 x kids whole life policies and am going to conservatively invest the former premium cost each year in an account for them instead.

When they get out of university (assumption) we will give them the money and they can decide what to do with it. Given the whole life premiums we were paying for each of our 3 kids, there should be a good chunk of $ in the account in 14 - 20 years from now!
I went into my insurance agent today and signed the papers to cancel our kids whole life policies to make it official. On his desk he had a sign that said:

"Insurance is a WANT not a NEED'.

The capp'ed words were on the sign.

I thought this was quite deep and in most cases likely true; reminded me why I like working with him so much. Maybe that was the purpose of the sign in the first place though. ;)

The more I post on this forum the more cynical I'm starting to think I am!
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