All Life Insurance Tips

I'm 25 and my father purchased a whole life insurance plan through Gerber..My sister got her 10 yr old the?

same, Shes is claiming when he turns 21 he gets a certain amount of money. I was under the impression I could borrow from it but not cash it in. That would be nice I could use the money but since Im 25 would it be to late

Public Comments

1. You can borrow against the cash value but at 21 there is very little cash value. After the POLICY is about 25 years old the cash value may equal the premiums paid for that 25 years so even then there is little cash value. If you borrow against it you can borrow around 75% of the cash value. You can cash it in at any time for the cash value. Life insurance is a poor financial investment, as you'll see when you go to borrow anything.
2. If it is a whole life policy with cash accrual you can take some out after a certain period of time. When did your father take out the policy? What is the face value of the policy?
3. A simple answer: Its a rip off. Basically its a whole life policy where your premiums are paid for two things: The insurance and the cash value. While premiums may seem very low (about $216/year for $25,000 coverage), a 35 year old man that is healthy can purchase a 20 year term policy with $250,000 for about the same price! In the first 2 years of the policy, no cash value is accumulated. After that, you will get 1 to 3% interest on the cash value. I'm not sure how they determine how much of your premiums goes into the cash value. When your child reach age 21, ownership of the policy is transferred from you to your child. If you (or your child at age 21 or older) wanted take money out of the policy, you can borrow from the cash value. You will be charged 8% annual interest. When you pay this loan back, the interest goes to the insurance company. It's similar to you withdrawing money from your savings account, but the bank giong to charge you daily interest until you put the money back. If you or your child cancels the policy while there's a loan balance due, you will be responsible for income tax on the loan balance if the child is under 21. If the child is 21 years old or older, your child will be responsible for income tax on the loan balance. Surrender charge will apply on the cash value if you or your child cancels the policy. If the child dies and there is a loan balance, this amount plus interest plus missed premiums will be deducted from the face amount of the policy. All the cash value is kept by the insurance company. In summary: 1) Its very expensive. 2) It gets a very low rate of return 3) No withdrawals allowed. You either borrow and pay 8% interest OR cancel the policy and pay surrender charges. 4) Lose cash value upon death of the child, but at least they pay the death benefit to you. 5) One policy per child My recommendation: Get a term policy on yourself. Most people only need 20 years. Some need 10 or 30 years. Financial experts say you should get coverage of ten times of your gross income. But every situation is different, so I would go with a company that can find the exact amount of coverage you really need or determine the amount of coverage you need by yourself. A good start would add all your debts. If you have $300,000 in total debts, then you going to need at least $300,000 in coverage. A 35 year old who is healthy and gets a 20 year level term with $300,000 coverage will cost about $20 to $25 per month. I own a 20 year level term with $250,000 coverage at age 23 and pay about $18/month. If you are married, add a spouse rider to your policy. If you really want to put coverage on your child, you can add a child rider with a minimum of $5000 coverage to a maximum of $25,000 coverage. A child rider covers all children from 14 days old to age 25. At age 25, the child can get his or her own life insurance, regardless of health status. By adding these riders, your entire family can be protected in one life insurance policy. If you were to get individual life insurance policy for each member of your household, it will cost you lots of money. I don't know your other goals, but I'm guessing retirement and funding your child's higher education (college) are 2 of the things you want to accomplish. Its kind of impossible for me to tell how much you need to save every month to accomplish both these goals. But I can give you some pointers. For retirement, you want to open a Roth IRA. You want to invest in mutual funds because mutual funds has historically out-perform the stock market in the long run. I invest $400/month in 4 different mutual funds. If the average annual return on my investment is 10%, in 20 years I will have about $306,000 saved. I would be 43 years old and plan to retire at age 60. So at age 60, I will have about $1.8 million. I'm being conservative with 10% because the mutual funds I have done 14% average annual return from 1980 to 2009. I don't have any kids, but if I did, I would open a 529 plan for my child to fund his or her higher education. There are other plans that can accomplish this goal such as Coverdell and UGMA/UTMA accounts. A Roth or Traditional IRA can even fund for your child's higher education, but I would only use an IRA for retirement.
4. Not unless you die, he doesn't. She's wrong. And you're wrong. Only the owner of the policy can borrow against the cash value. And for that type of policy, it doesn't usually start accumulating cash value, until you're 21. You borrow agasint the OVERPAYMENT that you put in, NOT against the death value. At 25, you'd be lucky if there's $25 you can borrow. IF you were the policy owner.
5. If she bought it for him to cash in when he's 21 then it makes no sense to buy a whole life policy in the first place. The purpose of a whole life policy is to have insurance that will last your whole life. If she's canceling it in 11 years then she'd likely be better off sticking the money in the bank and paying $30 a putting a rider on her own life insurance policy to cover ALL of her kids.
6. Unfortunately, these joke policies are allowed to flourish. Insurance is for protection, not investment purposes. And insurance is meant to cover those people(such as a husband) that make the money for the family, so if that person dies prematurely, there will be money for the rest of the family to live off of. Buying a policy on a child is wasteful. He should have put the cash to work in mutual funds. Anyway, your sister is following in your dad's mistaken footprints, and is wrong in her assumption of cash at the end of the rainbow. And also, you can borrow against the policy, but will discover the sum allowed will add up to a plate of beans.