Personal Finance

Life Insurance Q&A - w/ FAQ Section

  • Last Updated:
  • Apr 16th, 2017 1:54 pm
Jr. Member
Sep 23, 2013
184 posts
89 upvotes
Windsor, Ontario
vivmk20 wrote:
Mar 20th, 2017 6:24 pm
I am planning to get permanent life insurance for my son who is 14 year old. As I understand it will be much cheaper to get permanent life insurance for him at this age where I will contribute for next 4-5 years and when he starts earning then he can contribute. I am looking at 1 M policy.

Any suggestions?
Is there any reason for getting the life insurance other than the cost factor of "now vrs later"? A $1 million dollar permanent insurance policy will still cost quite a bit, even at a younger age. Will your son want to take on that kind of premium when he starts working? Where does this insurance plan fit into a bigger financial picture? It's hard to make recommendations on a plan like this without a lot more information.
Jr. Member
Nov 16, 2013
185 posts
15 upvotes
You are right the most important factor is cost now and later. Also this would be the minimum amount to provide protection for his future family.
Jr. Member
Sep 23, 2013
184 posts
89 upvotes
Windsor, Ontario
vivmk20 wrote:
Mar 20th, 2017 7:56 pm
You are right the most important factor is cost now and later. Also this would be the minimum amount to provide protection for his future family.
If you don't mind me asking a few questions, your son is 14 and still financially dependent on you do you have your own life insurance or critical illness insurance? Do you have any other children? Any Debts? Are your investments being fully utilized? Sons RESP? What's your income, cash flow, cash reserve situation like? What will your son's future income approximately be?

I understand wanting to get a good price on an insurance plan, but everything I listed get's prioritized over a child's life insurance. I'd even pick critical illness insurance for a child before life insurance (or some time of hybrid product).

I also know you only want to know which company has good permanent life insurance for a child, the truth is, a lot do. Sunlife, Desjardins, Canada Life, etc.
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Sep 15, 2009
2708 posts
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Toronto
vivmk20 wrote:
Mar 20th, 2017 6:24 pm
I am planning to get permanent life insurance for my son who is 14 year old. As I understand it will be much cheaper to get permanent life insurance for him at this age where I will contribute for next 4-5 years and when he starts earning then he can contribute. I am looking at 1 M policy.

Any suggestions?
I agree with what Steve has mentioned above. While down the road it may have been a smart move to get your son started on a permanent life insurance policy today, you need to consider cash flow and priorities. If after all is taken into consideration and it is still your intention to set your 14 year old son up for a permanent policy, there are a few things to consider before you can even get coverage on him. Do you and your spouse have coverage on yourselves? if so, how much? If not, why not? Doesn't matter if it is term or permanent but the insurance company is without a doubt going to take this into consideration. There are restrictions as to how much one can purchase for a child/minor/dependent relative to the amount of coverage the adult owner/parent has on their own lives. Its a multiple in most cases. It should come without question or surprise as to why they have these measures in place.

The other issue is: what if your son doesn't want to take over the premium? What if he is incapable financially? The cost of a $1,000,000 permanent policy will run you a fair bit (especially if it is participating and/or paid up whole life). Do you plan to purchase a "life time" pay policy? meaning you would continue to pay premiums for life, or would you purchase a "paid up" policy that is contractually paid for over a number of years? Most common is 20 year.

While setting your children up with permanent coverage now is indeed cheaper than it will be years down the road for the same coverage, not withstanding the cost, does your child really need $1,000,000 today? If your son is 14 and likely will not have a family of his own (so nobody dependent on his income) until 10-20 years from now, you might as well purchase a lower amount that has the potential to grow over time - when the child really needs it. The death benefit should not be what is important now, but what it will be years down the road.

For a Life pay you are looking a minimum of $300/month and for a 20 pay, closer to $500/month + depending on company, type, guarantees, etc.
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Dec 30, 1969
20 posts
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Vancouver
vivmk20 wrote:
Mar 20th, 2017 6:24 pm
I am planning to get permanent life insurance for my son who is 14 year old. As I understand it will be much cheaper to get permanent life insurance for him at this age where I will contribute for next 4-5 years and when he starts earning then he can contribute. I am looking at 1 M policy.

Any suggestions?
In addition to the great advice from SteveDFSin and wesboag, I did a bit of digging through various life insurance underwriting guidelines. Because they do not allow me to copy the text, I have attached a bunch of clippings from Manulife, Empire, Equitable and SunLife. Bottom line is that they need very good reasons why the insurable interest for a child is $1 million. If you're going down this road, you might want to consider a base amount of insurance and a guaranteed purchase option rider that allows for additional purchases in the future without medical evidence.
Images
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User avatar
Dec 30, 1969
20 posts
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Vancouver
vivmk20 wrote:
Mar 20th, 2017 6:24 pm
I am planning to get permanent life insurance for my son who is 14 year old. As I understand it will be much cheaper to get permanent life insurance for him at this age where I will contribute for next 4-5 years and when he starts earning then he can contribute. I am looking at 1 M policy.

Any suggestions?
Hello again - I came across the attached graphic that I find very useful in anticipating the changes we go through in various insurance needs over a lifetime. This is only an example and everyone has a different story.
Images
Jr. Member
Nov 16, 2013
185 posts
15 upvotes
SteveDfsin wrote:
Mar 21st, 2017 11:24 am
If you don't mind me asking a few questions, your son is 14 and still financially dependent on you do you have your own life insurance or critical illness insurance? Do you have any other children? Any Debts? Are your investments being fully utilized? Sons RESP? What's your income, cash flow, cash reserve situation like? What will your son's future income approximately be?

I understand wanting to get a good price on an insurance plan, but everything I listed get's prioritized over a child's life insurance. I'd even pick critical illness insurance for a child before life insurance (or some time of hybrid product).

I also know you only want to know which company has good permanent life insurance for a child, the truth is, a lot do. Sunlife, Desjardins, Canada Life, etc.
Thanks,

All these are great questions and I am considering all of them to decide about his insurance. Yes I have insurance for me and spouse. We have done RESP for him. Debt is only the mortgage.

Thanks again.
Jr. Member
Nov 16, 2013
185 posts
15 upvotes
wesboag wrote:
Mar 21st, 2017 3:07 pm
I agree with what Steve has mentioned above. While down the road it may have been a smart move to get your son started on a permanent life insurance policy today, you need to consider cash flow and priorities. If after all is taken into consideration and it is still your intention to set your 14 year old son up for a permanent policy, there are a few things to consider before you can even get coverage on him. Do you and your spouse have coverage on yourselves? if so, how much? If not, why not? Doesn't matter if it is term or permanent but the insurance company is without a doubt going to take this into consideration. There are restrictions as to how much one can purchase for a child/minor/dependent relative to the amount of coverage the adult owner/parent has on their own lives. Its a multiple in most cases. It should come without question or surprise as to why they have these measures in place.

The other issue is: what if your son doesn't want to take over the premium? What if he is incapable financially? The cost of a $1,000,000 permanent policy will run you a fair bit (especially if it is participating and/or paid up whole life). Do you plan to purchase a "life time" pay policy? meaning you would continue to pay premiums for life, or would you purchase a "paid up" policy that is contractually paid for over a number of years? Most common is 20 year.

While setting your children up with permanent coverage now is indeed cheaper than it will be years down the road for the same coverage, not withstanding the cost, does your child really need $1,000,000 today? If your son is 14 and likely will not have a family of his own (so nobody dependent on his income) until 10-20 years from now, you might as well purchase a lower amount that has the potential to grow over time - when the child really needs it. The death benefit should not be what is important now, but what it will be years down the road.

Thanks for the excellent advice . This is really of great help. I will consider above points.

For a Life pay you are looking a minimum of $300/month and for a 20 pay, closer to $500/month + depending on company, type, guarantees, etc.
Jr. Member
Nov 16, 2013
185 posts
15 upvotes
RichardVetter wrote:
Mar 21st, 2017 6:37 pm
Hello again - I came across the attached graphic that I find very useful in anticipating the changes we go through in various insurance needs over a lifetime. This is only an example and everyone has a different story.
Thanks Richard,

I was not aware that it has to be certain % of our insurance. Probably I have to reduce the amount of insurance for him

Thanks for the screen shots.
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Dec 30, 1969
20 posts
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Vancouver
vivmk20 wrote:
Mar 21st, 2017 8:31 pm
Thanks Richard,

I was not aware that it has to be certain % of our insurance. Probably I have to reduce the amount of insurance for him

Thanks for the screen shots.
You're welcome. Bottom line is that a case needs to be made for the degree of need that there is for the coverage. The argument for buying coverage to cover future needs is a valid one but there are limits to which a carrier is willing to go. Best approach is to work with your insurance advisor to build a solid case.
Newbie
User avatar
Dec 30, 1969
20 posts
10 upvotes
Vancouver
vivmk20 wrote:
Mar 21st, 2017 8:31 pm
Thanks Richard,

I was not aware that it has to be certain % of our insurance. Probably I have to reduce the amount of insurance for him

Thanks for the screen shots.
You're welcome. Bottom line is that a case needs to be made for the degree of need that there is for the coverage. The argument for buying coverage to cover future needs is a valid one but there are limits to which a carrier is willing to go. Best approach is to work with your insurance advisor to build a solid case.
Deal Addict
Feb 4, 2015
1994 posts
312 upvotes
Had my cousin ask me for insurance advice past weekend and while I gave my opinion based on how I understood... I nevertheless strongly advised he see an insurance adviser or financial planner. He is 42.

Thought to get some additional feedback here.
  • His parents own a 50k whole life policy where he is the insured [bought many decades ago].
  • Presently a roughly 20k guaranteed cash value plus roughly 6k accumulated dividends so about 26k cash value presently.
  • Accumulated dividends are used to pay annual premium of about $400/year so parents have not been paying any premium for number of years.
  • If dividends stay as is then insurance policy will lapse by 2051 unless pay premium at that point or they can pay starting now [7 annual payments of $400] and then policy good until age 99 if dividends do not decrease [Note: dividend scale have been decreasing for many years now]
  • If dividends decrease then insurance policy will lapse way before 2051 [like around 2034]

What to do:
  • Do nothing and revisit in 2050 or so [or 2033 if dividends decrease]?
  • Start now paying annual premium out of pocket of $400 for next 7 years?
  • Cash out policy and invest in good dividend stock?
  • Cash out policy and buy a term 20 policy?
  • Question: The cash out amount received is equal to the cash value of $26k or just 20k guaranteed cash value?
  • Question: Presume there will be a capital gain component to this that parents will have to report?

Thanks.
Member
Dec 5, 2002
219 posts
35 upvotes
vivmk20 wrote:
Mar 20th, 2017 6:24 pm
I am planning to get permanent life insurance for my son who is 14 year old. As I understand it will be much cheaper to get permanent life insurance for him at this age where I will contribute for next 4-5 years and when he starts earning then he can contribute. I am looking at 1 M policy.

Any suggestions?
My 30-second suggestion? Don't buy it. I don't think permanent life insurance makes sense, because our need for life insurance changes drastically over our lives.

No kids or spouse? No life insurance needed.
A spouse and no kids? Term insurance to replace some of your income to cover some of the mortgage.
A spouse and kids? Lots of term insurance to replace your income to cover the mortgage and the cost of raising kids through to university.
Kids are done university and the mortgage is paid off? No life insurance needed.

Remember, it's typically not cheaper overall to buy permanent insurance at a young age. It just costs less per year. Big difference.
Jr. Member
Jan 16, 2009
196 posts
50 upvotes
I've been reading the last few pages of this thread, seems like everyone is going for term, as opposed to whole life insurance.

If the purpose of the life insurance is really just a death benefit and not considering cashing out the life insurance, with all things equal, I know term insurance is cheaper per year, but you need to pay that for x numbers of years until you die. So if you live until 95, and you are only 30, you need to pay 65 years. Whereas for whole life, usually you are done in 20 years or even less with using the dividends. Might turn out paying less than term.

Am I missing something? Why is everyone here so against whole life?
Member
Nov 13, 2013
252 posts
88 upvotes
wayneg9999 wrote:
Mar 23rd, 2017 5:47 pm
I've been reading the last few pages of this thread, seems like everyone is going for term, as opposed to whole life insurance.

If the purpose of the life insurance is really just a death benefit and not considering cashing out the life insurance, with all things equal, I know term insurance is cheaper per year, but you need to pay that for x numbers of years until you die. So if you live until 95, and you are only 30, you need to pay 65 years. Whereas for whole life, usually you are done in 20 years or even less with using the dividends. Might turn out paying less than term.

Am I missing something? Why is everyone here so against whole life?
Generally it is assumed you will invest your savings from buying term rather than whole life and your returns will vastly exceed the whole life product which is a conservative investment with very high fees and commissions.

It does have some tax advantages but this mostly comes into play if you are very wealthy. It is also a forced savings vehicle which can be useful for some.
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