An article by BudgetQueen
My dad purchased a whole life insurance policy for me when I was very young. As I grew up the cash money that accumulated added to cover all of the expenses for my Bachelors Degree at the state university. My dad is also doing the same for my children. Am I grateful? Absolutely. Is it still a good idea to use whole life insurance to save up for college? Well let’s talk about some of the savings benefits of life insurance, and the other things that life insurance can do for you.
No one can replace you
No amount of money will replace what you give your family. Life insurance is important but it is meant to be a supplement to your loved ones if something were to happen to you. It is especially important if you have children, or others that depend on you and may not be able to provide for themselves if something were to happen to happen for you.
So with that in mind….
Pay only for what you need
Only spend what you can afford to spend. It will become another bill that you will pay every month. Remember that the higher the policy, the more you will have to pay every month as a premium. Just because someone says that you could qualify for a $1,000,000 policy, doesn’t mean that you should get that much.
Calculate your expenses to see what would be a fair amount. A particular dollar amount to keep in mind would be the mortgage and/or college tuition for your kids. You may also want to consider the annual salary that would be lost up until your kids are at an age where they can take care of themselves. Also consider inflation in school costs and living expenses.
Term versus whole insurance
Although there are multiple kinds of term insurance and whole life insurance, generally there are two major differences between term life insurance and whole life insurance.
Whole life insurance
With whole life insurance the cash benefit usually stays the same. So let’s say while your child is young, you take out a $200,000 policy. A $200,000 policy may be sufficient now, but it may not achieve what you want it to achieve in 20 years from now. An increase in benefit payout will probably require a new policy.
With whole life insurance, in most cases a proportion of your benefit can be withdrawn and used — such as my dad did for me when I was in college. It is always important to review and understand the terms of your policy; for instance a withdrawal will be taxed like income.
Term life insurance
Term life insurance is generally for a specific period of time. A 20-year policy is typical. At the end of that time period, you will need to start a new policy.
Whole life insurance and savings
Although the whole life insurance paid for my college, there are a lot of options out there. There are a lot of options that have a higher rate of return, and therefore pay for more of what today’s student needs. However, I believe that any savings is good savings. It is money being put aside for an emergency or something special. If that is a savings plan that you understand and can stick to, then it is as good as gold. A reliable savings account or money market account can also help you reach your goals.
Would I be able to qualify?
Most life insurance requires a medical exam. If you have a pre-existing condition there may be some stipulations, but in the majority of cases, there will be something out there that works for you. I am someone who has a re-existing condition and I have a policy. The terms in my policy are different than the terms with my husband’s policy (who does not have a pre-existing condition). Nevertheless, it is something that works for us and it gives me assurance that my family will be OK financially if something were to happen to me.
The important thing is to be honest and not hide anything. There are a lot of options. Also remember that not disclosing a known medical problem could complicate the benefit for your family if something happens to you.
So should I get it?
I am someone who believes through personal experience as a young adult and now a parent – life insurance is something very important to me and my family. However only you can decide if it is something that you can and should do. Weigh the options by talking to other real people with real experiences.
Regardless of whether you protect your family this way, or another way, the mere fact that you are thinking of them and what they would do without you – is one of the most selfless things that you can do.