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



## mcu (Dec 6, 2009)

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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## John_Michaels (Dec 14, 2009)

"Buy term & invest the difference" - sorry, couldn't resist but this might be actually applicable here?

I believe the purpose behind life insurance is to pay off debts and ensure income for the surviving family. You have no current debt but obviously future debt such as funeral, school for kids, and replacement income.

Being debt free @ 32, I assume you have high income/low expenses and thus I would suggest the following middle ground.

1. Buy Term life for XX years - the critical assumption is that this costs much less than Whole Life
2. Between now & then, continue to invest until you have a sizable net asset base that the family can survive without you for a period of time - this magicially works out to the period of XX years of course
3. Once XX years is complete, the Term Insurance expires, you have more savings than otherwise and you have the additional cash flow that had went to Term.

Of course if you can't save money, Whole Life would be better I think - but that's not you I assume.

I think the No-Life-Insurance-invest-instead is too risky. You just KNOW as soon as you plan to do this, something is going to happen. You'll be lucky to get a pine box then )

[disclosure] My Life Insurance is through work so file this under 'thoughts', not 'advice'. Through work was cheap so it was an easy decision. When I get 'wacked' from work (no-one retires anymore from my industry), I don't plan to get Life Insurance as I think I have enough assets to cover my family if I die sooner than later. LTD/Critical care is another matter though and IS on my to-do list to investigate.


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## markham (Nov 16, 2009)

i offer insurance to my clients, have never seen a case for whole life, and your doesn't look like a case for it either. 

i agree with John, term to cover your family until they are out of the house, and then determine if there is a need for any further coverage. DI and CI are also important to protect yourself should something happen (far more likely than needing life insurance statistically speaking). keep up with your investments. make sure that your retirement goals are met, and worry about an estate afterwards.


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## mcu (Dec 6, 2009)

Thanks for the replies guys. My goal was give the kids one less thing to worry about when they get older and at least they can leave something to their kids/my grandkids with their own policies. I have an amount saved up and two small rental properties which I think will allow my wife and kids to live on even if I were to pass. This is why I didn't really feel to attracted to term life, but I will research again.

My interest or main goal was to leave each of my 4 children with a million bucks when I go and I prefer if they were alive also to enjoy it  So in other words I am doing it more of a wealth protection to leave them and at the same time the whole life had the cash value and life protection. What I was not able to understand 100% is if I can make more using another vehicle of investment. 

My business, is very slow compared to what it was in the past 5-10 years because of the US economy, so I am actually enjoying the time off from working 18-20 hour days. My income is MUCH less than it use to, but I was able to pay off all my debt while business was good and now my expenses are much less also. At the same time i am enjoying the time with my kids. 

I am just looking for ways right now to make my wealth grow but in a safe way. I am not into the stock market. I invested and lost just like everyone else, but I was patien enough not to dump it and waited till I came in the green and sold last week. I didn;t enjoy the feeling I had everyday of worrying if I was going to lose more and more so I am looking for safer/lower return investments.


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## cannon_fodder (Apr 3, 2009)

mcu said:


> Thanks for the replies guys. My goal was give the kids one less thing to worry about when they get older and at least they can leave something to their kids/my grandkids with their own policies. I have an amount saved up and two small rental properties which I think will allow my wife and kids to live on even if I were to pass. This is why I didn't really feel to attracted to term life, but I will research again.
> 
> My interest or main goal was to leave each of my 4 children with a million bucks when I go and I prefer if they were alive also to enjoy it  So in other words I am doing it more of a wealth protection to leave them and at the same time the whole life had the cash value and life protection. What I was not able to understand 100% is if I can make more using another vehicle of investment.
> 
> ...


Wow... tough crowd. If nothing else, congratulations on what you have achieved so far!

But, you should have changed your story a little more so we couldn't figure out who you are.

Ladies and gentlemen - Tiger Woods!

Seriously - don't do the Whole Life. If you want to have a term policy and you also are considering leaving the children a substantial amount of money, think of having them pay the premiums in 20 years or so when they can afford it. I.E. take out separate insurance policies and have them pay the premiums to help pay out for any estate taxes if you can't leave it to them tax free.


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## mcu (Dec 6, 2009)

LOL...nice one! and thanks for the compliment.

Are you saying like take out a few term plans instead of one whole life and just help then continue paying for it or make them pay for it?

or am I misunderstanding here?


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## John_Michaels (Dec 14, 2009)

cannon-fodder; you're right, where are my manners.
mcu - BIG kudos, years of risk & hard work have paid off, great accomplishment.

I think cannon fodder has a great idea. I believe life insurances passes through the estate tax free. Having the kids pay the premiums is a fairly common strategy, heck I recall tv commercials about it. ..Unsure what to call it, income splitting? cost sharing? generation financial planning  There are lots of web pages around documenting this, no doubt CC has one, just can't find it


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## mcu (Dec 6, 2009)

Would Universal Life still be as bad? The only thing that would be taxable if i died tomorrow, for my wife/kids would be the rental property. capital gains on that. I have a good chunk in liquid savings but only 30k in RRSPs. This is the reason i was looking more at insurance and retirement building. Although I am proud of the liquid assets I have been able to save, I would like to find a way to make this grow, so I don't have to worry about my retirement and leaving $$ to my wife in kids.

Let's say from this day forward I decide to get a part time job making 40k year (which I think I can live comfortably on), would i be able to make somethign good for my retirement and leave to my kids or do I still need many years of high income? Also should I be worrying less on insurance and more on RRSPs and RESPs?

Thanks


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## Berubeland (Sep 6, 2009)

MCU- you are 32, your mortgage is paid off, go have a good time and stop worrying about your impending death.


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## HaroldCrump (Jun 10, 2009)

If giving $1M legacy to each of your kids is your only goal, then this may be the easiest way.

However, I would question a couple of things:
- You may live to a ripe old age (with God's grace). When your time comes around, your kids will be grown up adults and may be in their 40s or 50s. Would $1M from you be as meaningful to them at that point rather than you spending the insurance premium money on them _now_ (education, travel, cultural enrichment, whatever).
- Why do you feel you need to leave $1M each for your children?


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## mcu (Dec 6, 2009)

You are right. I have been saying to myself that I rather have the $$ to give to my children before I go, so I can see them enjoy it. The reality is I don't think my money will grow enough by then to have a significant amount to leave them while keeping enough for my wife and I to enjoy our retirement.

As for the million $$ number each, I figure that by then it would be worth at least 1/2 that and I would love if I could pay off their mortgage or somethign where they could live a comfortable life without the stress on money and rather spend the time raising their kids. 

Maybe it's an unrealistic vision I have or even one that will spoil them, but once i have the plan in place and I know the money is there I will work on the best time/way to give it to them


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## John_Michaels (Dec 14, 2009)

mcu - ideas that are well beyond the scope of an internet blog and are subject to somebody who knows what they are talking about....cue the sirens and alarm bells

purchase investments, tranfer to the kids, pay the gain or fmv tax, and pay the income that it attributed back to you until they are 18?

setup a Family Trust?

Incorporate your business (big assumption on my part), pay private corporation dividends, pay the "kiddie tax"


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## HaroldCrump (Jun 10, 2009)

mcu said:


> The reality is I don't think my money will grow enough by then to have a significant amount to leave them while keeping enough for my wife and I to enjoy our retirement.


You are ready to commit 24K a year for 10 years to insurance premiums.
My point is that you can probably get a term policy with decent coverage for about $500 a year (you are young and presumably healthy).
Now imagine what you can do for your family with the other 23.5K a year.
That can easily pay for a trip to Europe every year, a vacation in the Carribean every year, sports/music lessons, high-end summer camps every year, foreign language lessons, etc.
Those things will go a long way towards enriching their childhood and giving them key skills to make their own way in the future.
This is just my personal opinion, of course.
The things I mention are intangible and you can't use a spreadsheet to calculate financial pros and cons of these.
I am 33 years old and have young kids, too.
All I can say is if I had 24K disposable every year for the next 10 years, this is exactly what I would do.


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## Ben (Apr 3, 2009)

HaroldCrump said:


> You are ready to commit 24K a year for 10 years to insurance premiums.
> My point is that you can probably get a term policy with decent coverage for about $500 a year (you are young and presumably healthy).
> Now imagine what you can do for your family with the other 23.5K a year.
> That can easily pay for a trip to Europe every year, a vacation in the Carribean every year, sports/music lessons, high-end summer camps every year, foreign language lessons, etc.
> ...


I think this way of looking at it.

Like the old adage: Give a man a fish, he eats for a day. Give him a fishing pole, he eats for a lifetime. 

Direct funds toward raising healthy, well-rooted, independent-thinking kids, and they will be far better off than simply having $$$ drop into their lap one day. Money doesn't buy happiness, and a family with the right set of values can be happy without money.


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## DrStan (Apr 5, 2009)

I agree that the whole life idea doesn't hold water. Start a nice nest egg for your kids, invest regularly and keep on doing so over the years. It will grow to a significant amount over time. However, the most important thing would be to teach them about money -- the time value of money, the huge advantages of saving early, the true costs of paying interest, the value of an education, the advantages of passive income, etc. With this knowledge, the kids will be able to set themselves up for life. 

I am the same age as you, no mortgage either, two kids and about half a million net worth. Even though my kids are still babies, I will teach them all they need to know. All the stuff my parents should have shown me: invest in low-cost instruments; do your own research; don't finance a car for years and years; look at insurance rates BEFORE buying a car; never go into credit card debt; negotiate just about everything in life; don't accept a first offer; set up automatic withdrawals and forget about it; etc. That will be a much greater gift than any insurance policy could be.


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## mcu (Dec 6, 2009)

Congrats on being mortgage free also DrStan!

I definately agree with you that all these values are priceless, but I came from a poor family and my parents never really knew or had the chance to save any money aside for us. My parents are now in their 60s and still both working because they have to. I don't expect them to leave me anything when they go, but it would of been a little relief to know that I don't need to stress myself so much about saving enough for my retirement. If I had a lump sum I knew my parents had put aside for me, I find I would of enjoyed life a bit more by travelling with my kids, or with my parents. Right now all I think about is working as much as I can to put aside for the retirement or the rainy day. Not sure if I am expressing myself correctly.

If we were to leave my kids a ton of cash and no education then they would probably blow it all in a couple years and for this reason I plan on doing a good combination of both. 

I looked into a term 20 plan and the price would be 900/year. This is the cheapest I found. Also they have term 100.
Do most of you have term 10 or 20?

Thanks again guys!


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## OhGreatGuru (May 24, 2009)

I kind of echo HaroldCrump's comment. I didn't want to get too far off topic by asking why you felt a need to leave $1M to each of 4 kids. If you seriously do, then talk to an estate planner. But otherwise, financial asssitance when your kids are younger would be much more useful to them than a windfall when you die.


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## HaroldCrump (Jun 10, 2009)

mcu said:


> I looked into a term 20 plan and the price would be 900/year. This is the cheapest I found. Also they have term 100.
> Do most of you have term 10 or 20?


I have Term 20 and it's a lot cheaper ($350 a year).
Which province are you in?
Have you shopped around?


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## mcu (Dec 6, 2009)

$350/year for a million bucks? wow! I am in Quebec and I shopped around on many online quote sites. I am non smoker in good health


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## HaroldCrump (Jun 10, 2009)

mcu said:


> $350/year for a million bucks? wow! I am in Quebec and I shopped around on many online quote sites. I am non smoker in good health


Ops sorry didn't realize you were still looking for $1M.
The $350 I have is for $450,000 in ONT.
So $900 for $1M is probably fine.


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## OptsyEagle (Nov 29, 2009)

_"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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## Wealthy1Day (Aug 30, 2009)

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.


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## OhGreatGuru (May 24, 2009)

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.)


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## mcu (Dec 6, 2009)

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


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## OhGreatGuru (May 24, 2009)

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.


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## specialk (Jul 14, 2009)

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 it....be careful.


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## ssimps (Dec 8, 2009)

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.


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## ssimps (Dec 8, 2009)

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!


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## ssimps (Dec 8, 2009)

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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