Do young adults need permanent insurance?

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Q. I’m thinking about getting whole life policies for my college-aged kids as a long-term investment. They may not need insurance now, but someday they will, and it will be cheaper today. Should I do it? Or should I just invest the cost of the premiums for them for the future?
— Mom

A. Life insurance can be a great investment — for those who need it.

But it’s not necessarily the kind of investment that will give you the greatest return for your premium dollars.

There are two main reasons to purchase life insurance, said Alison Hall, a certified financial planner with Stonegate Wealth Management in Oakland.

“Whole life and universal life policies are typically used to mitigate estate/death taxes,” she said. “Term life insurance serves to provide income to those who depend on the insured’s income, when they are no longer able to provide it.”

But, she said, whole life insurance is not typically an investment she’d recommend – especially for children.

Although the no loss provision tied to most whole life policies is attractive, Hall said, your children are young and can invest aggressively, which will provide a higher return. And if their investments do not perform well, there is time for them to rebound, she said.

Hall said if your children need to access cash value funds from the policy, they will not be available early on.

“It takes time to build the cash value — in part to accumulate reinvested dividends and the conservative investment strategy implemented by insurance companies, but also due to the administrative costs tied to these policies,” she said.

If in the future your children need life insurance, term policies are significantly cheaper and less complex.

Plus, she said, keep in mind that agents and brokers earn a commission — 2 to 8 percent of premiums — on the sale of these products, so if you decide to move forward, be sure you are working with an agent or broker that has your best interests in mind.

One last note: this is all assuming your children are healthy.

But if your family has a history of illnesses that might make life insurance cost-prohibitive or impossible to get later in life, you might want to reconsider further.

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This post was first published in July 2017. presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.