Moving on to Strange Corgi’s question – Strange Corgi, like the dog. Yes, okay, I should say Corgi. Oh, she didn’t say Corgi; she said “core G,” that sounds like a strange Corgi. I’m sorry. Here’s the question. Yep, thank you. I’m not sure you’ve covered this before, but how should I approach life insurance for children? Should you buy life insurance for your children, and if so, how much?
Well, here’s the thing. It’s only a few bucks a month, right? Like, you could get life insurance for so cheap. It’s cheaper the younger the child is than it will be for their entire life. That’s often the story that you hear. This is what Strange Corgi would like for you to think of. What is the reason that we buy life insurance? What is the purpose of getting life insurance in place? As someone who used to be on the insurance side of the industry, what we learned in school and what we’re taught is that the reason that you buy life insurance is that someone in your life is depending on you for their well-being. They’re depending on the assets or depending on the income for their well-being. So you have an insurable need if you have a spouse, significant other, if you have debt, if you have children, there are other circumstances if you were not here; there are obligations that are necessary. So that’s the premise of having an insurable need on someone’s life.
Well, now the question becomes, okay, when you think about your child, when you think about a young child that you know, maybe was just born like two or three days ago, is there an insurable need on their lives? Anyone depending on their financial creation to provide, and every time I go through the scenario in my head, there’s not. There’s not a need to be able to replace that child’s income or that child’s ability to provide.
So I am a proponent that I do not think it makes sense to buy life insurance on children. Agree or disagree? Well, I definitely don’t. I didn’t buy insurance on either one of my kids. But I will tell you, it’s funny; we just did a whole wedding ring question I love because I could turn a negative like talking about death into a positive talking about getting married. My parents were like your typical parents. I got sold some permanent life insurance on me when I was born, and then the two thousand dollars of my wedding ring came from cash value. Yes, well, okay, well, but that doesn’t mean that’s good. There’s no, no, that’s not good. That is horrible. Poor parents who did not their idea of investing with CDs never really built. They were great at saving money, but not great at maximizing and turning money into wealth was that this is another trap that they fell into where somebody sold them a product that probably they should have been buying instead of fifty dollars a month going to bronze life insurance. They used two thousand dollars for cash value that 50. You know, an investment fund that could have made them a million dollars, you know, or half a million dollars closer to financial Independence for them by investing into a mutual fund or something.
So Bo just took the biggest chunk of meat when he said what’s the why on what you buy insurance for, and these kids, they consume your resources. They don’t actually create income unless you got Macaulay Culkin back in his day when he was doing home alone and stuff. Most kids are consuming what you’re creating. So you’re not replacing their income. The biggest thing is probably, the burial. Yeah, that’s sad to think about, so there is a cost there, but that’s why, if you want to take this into account, you look at your emergency reserves and go, ‘Hey, if I had a car, this type of cost could come my way.’ And if you can plan for that, I mean, it’s kind of morbid because, unfortunately, death is one of those things that there’s a big reward or discount, I should say, if you pre-plan for it, versus waiting until the death occurs and then buying everything at the forced moment that you have to pay for all the services. So that’s a morbid thing because these products are sold through fear, and here’s the good news: most kids don’t die. So that’s why it’s a very cost-effective thing.
That leads to my third point on this: I always thought it was weird that this always falls into the permanent insurance category because this is a term. Your kids are owning your house for that 18 to 20 years. The burial cost is your community because, like I said, they’re consumers of your resources. They’re not, you know, adding to your balance sheet or your income statement for your household. So that’s a period of time that you can measure. Why would you buy permanent insurance on that? That’s just always a weird thing. Most people are going to use it, like I did, to buy their wedding rings or start. But if you want to do that, you could open a custodial channel vehicles for that, and you could put $50 a month into it, you know, and come out or 529. There’s, or you know, once they start working, you can do a matching funds for custodial Roth account. There are all kinds of cool things in there. Life insurance for kids is one of those things. Just ask yourself what the why is. I’m not saying no. It’s just, but just make sure that that’s the big thing about insurance. You have to match up what the goal is, the why, with what your needs are personally. And that’s why I was following all kinds of Jeremy over personal finance. He has been, no, it’s not kid’s insurance, but he bought, and I think it was an indexed universal life policy or something like that, and he has been ripping them up. I mean, because he bought a policy to actually show them how that he bought a policy so that he could see all the inner workings, and it’s fascinating to kind of follow that type of content and see somebody who goes in on the inside, kind of as an undercover sting operation and then tells you because he’s wired the right way mentally as a software guy who’s now wired like an engineer type mindset that he can go in there and look at this stuff. Yeah, I think it’s brilliant. So just understand the why. Don’t let somebody sell you on the fear of this.
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