Details of the Life Insurance Policy I Bought on My Daughter’s Life

by Evan

In my last post, I explained why I actually bought a permanent whole life insurance policy on my second child’s life, so I figured I would share the actual details of the policy itself.  If you didn’t read the last post, there are two main reasons why I purchased whole life insurance on both of my children (fuller details in the post):

  1. I am not going to work if something happens to either child and
  2. Guaranteed Insurability – I have created a policy whose death benefit can increase without medical underwriting

My Child’s Life Insurance Policy

The basics:

  • Approximately $50 a month for a current death benefit of about $132,000.
  • A permanent product rather than a term policy because the term would not allow the “not so basic” explanation to occur

I hope to God I never see that $132,000, but if something were to happen to my daughter, that is enough money to allow me to grieve in a way that I see fit (i.e. not rushing back to my desk because I have to earn my next mortgage payment).

The not so basic:

  • I included a rider that says if my daughter is ever disabled she/I do not have to pay the premium, yet the policy continues to grow normally
  • I included a rider that guarantees that she can increase her death benefit from $132,000 to $1,132,000 without medical underwriting

Growth on my Child’s Life Insurance Policy

If you were to decide to look into this type of protection, I would recommend looking at some of the larger mutual insurance companies.  Remember, hopefully this policy doesn’t pay out for 90+ Years! I want to make sure the company is likely not only to be around, but financially strong.  Some of the larger mutual companies have been around for 150+ Years (MassMutual started in 1851, Guardian started in 1860, etc.) – one can hope they’ll be around in another 100 or so.  I don’t think there is value in naming the company I used as I wouldn’t want to sway anyone other than to actually think about the financial move.

Cash Value Growth

Year Cumulative Outlay Cash Surrender Value Internal Rate of Return
5 $3,000 $657 -46.62%
10 $6,000 $3,782 -8.60%
15 $9,000 $6,829 -3.54%
20 $12,000 $11,210 0.65%
25 $15,000 $17,469 1.15%
30 $18,000 $26,049 2.29%
65 $36,595 $244,725 4.78%
85 $36,595 $760,443 5.01%

 

Death Benefit Growth

Year Cumulative Outlay Death Benefit
5 $3,000 $134,201
10 $6,000 $139,152
15 $9,000 $145,927
20 $12,000 $158,548
25 $15,000 $176,586
30 $18,000 $198,475
65 $36,595 $519,216
85 $36,595 $973,704

 

First, the above numbers are not guaranteed.  But that is okay the market isn’t guaranteed either.   So, in a fantastic world, Daughter hits the age of 30 and has a family or business (or whatever else makes her happy) and I hand her a policy where she can increase the death benefit without a medical exam, with cash value of $25K (so assuming inflation cuts the value in half I’d still take a $12,500 asset from my parents) and I bought a terrible CD/Bond with an IRR of 2%+ tax deferred. Worst case scenario something happens very early on, and for about the price of a monthly cell phone bill I can spend as much time as I need with my wife and son.  This is obviously a HORRENDOUS scenario, but one where I can offload some of the financial risk (obviously not the emotional one).

 

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