Generally speaking, if one were to purchase whole life insurance the younger they start the better it is. So purchasing a WL policy on a new born will likely get you the cheapest rate possible (from a whole life policy point of view) while having the comfort of paying level premiums and a steady increase in cash value. As you know however, WL policies are more expensive in general so this puts your premium at a higher "bracket" so to speak from the get go.kenchau wrote: ↑Mar 8th, 2017 9:42 amDoes it make sense for parents to buy whole life insurance for their newborns, since premiums will be dirt cheap and their child will be set for life from a life insurance perspective?
Let's assume you get $300+K coverage or something to account for inflation by the time they get older.
Assuming Permanent insurance (Universal or Whole Life) is the only type of insurance they are looking to get, another option would be to get a quote on Universal Life with the option of (YRT to Level). This is basically to renew premium rates on an annual basis and eventually convert to a Level premium (Year to chosen by you & Advisor). This will provide a premium at a MUCH MUCH lower cost of insurance in the beginning years and then eventually switching back over to a level premium for the peace of mind. Technically speaking, your parents can put the difference in premium between the WL and UL policy, into the policy within the investment portion of the UL and have that portion grow for X number of years. Switch it over at X Year mark to Level and then just let the csv grow on its own.
E.g. If a WL policy for the newborn were to cost 500 dollars a year, versus the same coverage or a UL policy costs 200 a year. Your parents can still still put 500 into the UL policy (granted the policy has a maximum limit above 500). This way 300 dollars go towards investments. By the 10th year (when the kid is 10 years old), switch it over to a Level premium which should still be very affordable and continue to pay the Level premiums there after.
*Note: the numbers above are just examples and do not reflect actual cost of any policies*
You / your parents will need to look at the illustrations provided by their Advisor and determine what's the best plan suitable.
One thing to note is that WL is generally for those who don't like monitoring their funds and just want a piece of mind while UL is for those who want to be a little more involved with their investments.