05 Nov Do my kids need life insurance?

Q. I’ve been offered a cheap whole life insurance policy for each of my kids, who are 9, 7, and 5. The payout is $10,000 in benefits for a $250 per year premium. Is it worth it?
— Not sure

A. If this offer came to you in the mail, there’s a very good chance that it wasn’t meant for you specifically, but for any potential customer of life insurance.

So rather than accept a blind pitch, you need to take a look at whether or not a policy like this accomplishes your goals.

There are many “whole life” imitations out there, said Ed Gaelick, a Chartered Life Underwriter and Chartered Financial Consultant with PSI Consultants in Glen Rock.

“Provided you purchase a pure whole life policy, preferably from a mutual life insurance company, juvenile whole life policies are a great idea,” Gaelick said. “They lock in premiums for life, share in the insurance company’s profits in the form of dividends, build a cash value that is not subject to market risk and provides a death benefit that will increase over time provided the policy is set up properly.”

That means your child will have a policy in place when life insurance becomes important for them at some point in the future, he said.

On calling the premiums on the policy you’ve been offered “cheap,” Gaelick said the premium isn’t what makes a policy “cheap.” It’s about value.

If you are getting great benefits from owning a juvenile whole life policy, regardless of the premium, it is of great value, he said.

“If $250 annually is what you can allocate towards a policy, that doesn’t make it `cheap,’ he said. “It simply will result in less accumulated values.”

Answering the question “Is it worth it?” will depend on your personal expectations, Gaelick said.

He suggests you consult with an unbiased advisor who has vast experience in whole life to properly explain all the advantages of owning whole life, whether it be for you or your children.

Buying a policy when a child is young can be a big help if your child becomes uninsurable in the future.

While life insurance can serve many purposes, it’s often used simple to replace an economic loss that arises when someone dies.

“The untimely passing of a child would be an awful experience. But if it were to happen, in most cases it would not involve a loss of income,” said Vicky Tomaro, an Investment Advisor Representative with Tomaro Financial Group in Wall.

She said an inexpensive option for parents is to add a child rider either through their group insurance or personal life insurance. If you wanted a $10,000 child rider, for example, your cost would be about $50 per year and it would cover all of the children in your family who are under the age of 18, Tomaro said.

“I feel that a better option is to invest for your children’s future with a college savings plan,” Tomaro said. “Two good choices are a 529 and a Coverdell Education Savings Account. Even if you put a small amount aside, over 20 years, that amount could be substantial.”

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This story was first posted in November 2015.