Mason said:
You could cash it out. These policies often don’t make financial sense, even if they were taken out with good intentions.
Not everyone who buys these policies lacks financial knowledge. Even people with advanced careers get convinced to buy whole life policies for their kids. Sales tactics often play on emotions and fear to make the sale.
@Marin
I’ve never understood why someone would buy life insurance for a child. What’s the purpose?
Zeke said:
@Marin
I’ve never understood why someone would buy life insurance for a child. What’s the purpose?
The pitch is usually about ensuring lifetime insurability and offering a tax-free cash value. It’s often framed as a safety net for future financial needs.
Zeke said:
@Marin
I’ve never understood why someone would buy life insurance for a child. What’s the purpose?
I knew a parent who bought it to ensure they could afford a proper burial if something happened to their child. Sales tactics can really prey on fear.
We have term life insurance because we have kids. It’s meant to replace income if one of us passes. We planned for it to expire once our kids are financially independent, so we won’t need it forever.
If it’s a whole life policy, you can set it to use dividends to reduce the premiums. Once you have kids, consider adding term life insurance.
West said:
If it’s a whole life policy, you can set it to use dividends to reduce the premiums. Once you have kids, consider adding term life insurance.
What does ‘reduce premium’ mean? And what’s the difference between term and whole life insurance?
@Nori
Using dividends to reduce premiums means the earnings from the policy cover some or all of your payments. It’s common for older whole life policies to reach this point if they’ve been active long enough.
@Nori
Term life insurance covers you for a set period, like 20 or 30 years, and is generally much cheaper. Whole life insurance combines coverage with a savings or investment component, but it’s more expensive and usually not worth it for most people.
Life insurance shouldn’t be treated as an investment. It’s meant to provide financial security for dependents.
Broderick said:
Life insurance shouldn’t be treated as an investment. It’s meant to provide financial security for dependents.
That’s not entirely true. Life insurance can have investment-like features for specific cases, like estate planning.
@Val
It’s true for the vast majority of people. Insurance salespeople often oversell it as an investment to make a commission.