Instead of enrolling in life insurance, I suggest creating a business with the money the parents would have used to pay the premiums. Providing for the future of our children is not about leaving them gifts but ensuring they understand the value of work and self-worth.
There is one insurance policy that does not protect the actual policyholders, although they are the ones paying the monthly premiums. It instead covers the individuals the policyholders designate to receive the benefits upon death. Unlike other types of insurance like automobile, healthcare, or property; that type of insurance is not a requirement, meaning there is no law requiring individuals to carry one. I am talking about life insurance, which is a death benefit that parents or spouses leave to their survivors upon their passing.
The five common types of life insurance are term, whole, universal, variable, and final expense. When electing to have life insurance, policyholders give money every month to an insurance company. In turn, that insurance company agrees to provide a portion of the policyholder’s money to someone the policyholders designate as their beneficiary. Life insurance policy takes effect at the passing of the policyholder, meaning that the policyholder must die first for the beneficiary to collect. As you can see, unlike other types of insurance where the policyholder receives something against the premiums while alive, life insurance policyholders get nothing out of it, except the feeling that the children or the spouse will not struggle financially when they are no longer.
Certain types of life insurance have a cash value component, meaning that the policyholder does not only contribute toward his death but also, through the insurance company, invests in low-risk instruments such as bonds or fixed-income securities. Over time, as policyholders continue to pay premiums, the cash value within these policies can grow. The cash value growth is tax-deferred, meaning policyholders will only owe taxes on the growth once they withdraw or surrender the policy. Insurers who invest money in the cash value account can withdraw portions or the whole money while alive through loans or a policy surrender.
These types are whole, universal, and variable. However, they are not investments like 401K and beyond, IRA, savings, or CD accounts. Withdrawing cash or taking out policy loans from the life insurance policy reduces the death benefit the survivor will receive and incur interest charges or fees.
Considering that the average cost of life insurance is about $2000 per year for a family of four, it is crucial to wonder whether it is worth it not to purchase good moments for fear of spending money that should have been left to survivors. My advice is to create a business with those $2000 and let the children run it as employees as they learn entrepreneurial lifestyle and financial independence. Until the business generates profits, parents could, when necessary, lend money to the business, which the children would pay back monthly or a set schedule.
In summary, parents often feel obligated to sacrifice their happiness for the sake of their children or beneficiaries. Instead of enrolling in life insurance, I suggest creating a business with the money the parents would have used to pay the premiums. Providing for the future of our children is not about giving them gifts but ensuring they understand the value of work and self-worth.
Bobb Rousseau, PhD