Thinking About a Life Insurance Policy for My Son
I have been thinking of purchasing a life insurance policy for my 18 yr old son. Here is why. I'm 52 yrs old. My family has a large number of people that have had colon cancer. A local Cancer research group identified a Gene that causes this high rate of cancer in our family. I happen to have this Gene. I recently... tried to get a new life policy and was put into a high risk class because of my family history and had to deny the high premiums and keep a very poor policy that I already had.
I'm afraid that my son may have difficulty getting a good rate on any kind of policy when he is 30 or 40 years old. So I was thinking of purchasing him a 50K policy now while he is in good health and so far I don't have cancer so his rating should be pretty good.
I looked at two policies.
A Variable Whole Life policy from Nortwestern Mutual and a VUL from Allstate (Lincoln Benefit).
The agent from Northwestern said the VUL policies are very bad. He said the illustrations look good up front, but it doesn't reflect actual insurance costs when you get older. When you get older the cost of insurance will actually be higher and the policy will 'fall apart' because of higher expenses that weren't reflected accurately in the illustration. He claims the Variable Whole life policy correctly reflects these costs in the illustration. Yes, he admits more of the premium is taken out up front to cover the insurance but he points out that in this policy you aren't buying one year term insurance like you do in a VUL and the costs of insurance down the road is not as much as the VUL. Hope that makes sense.
The Allstate agent says the Variable Whole life policy is laden with heavy fees and to stay away from them. That is why Allstate and others developed the VUL. Lower fees and more money in the side fund etc. He also points out that you can borrow money in their VUL for about 1/3 of a percent...almost zero percent in retirment years where the Variable Whole life policy has a 1.5% load fee which further eats away at loans that are taken in retirement years.
I feel I should do something to secure at least a little insurance for my son while he is young and in good health.
Any comments would be greatly appreciated.
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posted by Jeffrey D. Voudrie @ 8:34 PM
5 comments
5 Comments:
Perhaps there is another alternative that makes even more sense. The ratio of premiums to death benefit on both of the policies you mentioned will be very low because they are based on lifetime costs. They have a savings element to help down the road when the insurance gets expensive.
A $50,000 policy isn’t going to help you son much in 30 years. Inflation is going to erode its value significantly.
I believe that it is important to buy as much death benefit as you can, while ensuring that he will be able to ‘qualify’ for the insurance regardless of his health. The best premium/death benefit ratio will probably occur in term insurance. You can find term that is convertible to whole life. In the event your son ever becomes uninsurable, he can ‘convert’ the term to whole life without evidence of insurability. He can get the same death benefit.
So you may be able to afford several hundred thousand dollars of death benefit that can be maintained for life this way. From what you’ve said that is the most important thing.
I will check out some term policies and see how they compare.
One thing I didn't mention is that in the Northwestern Variable Whole life policy, if premiums of $600 / year are continued to be paid, at age 65 the death benefit would have increased to $775,000. The death benefit starts going up around year 11 because the side fund gets too large etc. So in effect my son's $50k policy is a $775k policy at age 65 and $1.6m at age 75.
I thought that made it attractive.
Can you comment on the Variable Whole Life vs. VUL issue I stated above? These two agents, from different companies, have me confused and I don't know who to believe. Each agent says the other's is bad and to stay away from them, etc.
If forced to choose I would have to pick variable WL over VUL. The reason the death benefit goes up is because you will have paid so much in. Pay the same amount into a high quality mutual fund over that time and you would probably have more (and be able to buy the higher death benefit from the beginning). Make sure the term you look at is ‘convertible term’.
Thank you very much. I really appreciate your input!
You’re welcome. Let me know if I can be of further help.
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