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Picture this: You’re taking care of your playful toddler when your mom texts you asking for the baby’s Social Security number. Without giving it much thought, you give it to her.
A week later, you receive a life insurance policy invitation for your baby. That’s the shocking situation that one new mom found herself in, according to a Reddit post.
The policy left this woman in tears. After all, no one wants to think about their toddler’s potential death. And although the mother decided to decline the policy, she still wasn’t quite sure how to proceed without hurting the grandmother’s feelings.
Here’s a look at life insurance policies, and how to politely reject the life insurance gift.
Life insurance policies are broadly categorized into two main types: term life or whole life.
A term life insurance policy includes paying a premium for a specific period of time — say 10 to 30 years — with the understanding that if you pass away during that period, your beneficiaries would receive a cash payment. However, if you were to pass away after the term expired, your beneficiaries would not receive a death benefit.
For many, a term life insurance policy is an appropriate way to provide financial security for family members. Term life insurance also tends to be more affordable than whole life insurance.
With Ethos, you can get term life insurance in 5 minutes, with no medical exams or blood tests.
But when it comes to life insurance for a child, term life insurance may not be the best option since it would likely only cover the insured for their early years.
On the flip side, a whole life insurance policy covers the named insured for their entire life, assuming that the premiums are paid. If the insured party were to pass away at any time, the beneficiaries would receive a death benefit. In theory, this more permanent form of life insurance could be a better fit for insuring a newborn.
If whole life insurance sounds appealing, Life Insurance Savings offers a variety of straightforward whole life policies designed to give you peace of mind.
They offer several whole life insurance options that don’t require medical exams, with a wide range of coverage and premiums.
Of particular note, is their Guaranteed Issue Whole Life Insurance, which offers coverage up to $25,000 with premiums that are fixed for life — and don’t require a medical exam.
With Life Insurance Savings, you can find out what whole life insurance package is right for you, so you can focus on your family’s future.
There are other unique benefits to whole life insurance that can make it a better fit for insuring a child’s life.
Unlike term life insurance, whole life insurance policies often include a cash value savings component, allowing policyholders to build up cash value over time. That cash value can even be accessed during the policyholder’s life, offering tax-deferred growth and providing financial stability for the named insured.
Locking in life insurance from a young age also means the child can carry forward their life insurance. This means your child will still be covered even if they develop a medical condition that would otherwise stop them from purchasing a new policy.
A whole life insurance policy could be a valuable tool for providing financial stability for the named insured, but if that’s the ultimate goal, life insurance may not be the right choice. That’s because one of the drawbacks of a whole life insurance policy is that the cash value of these plans often include relatively low investment returns, similar to that of a savings account, according to the Government Employees’ Benefit Association.
Speaking with a financial advisor can be a great way to figure out what option suits you and your family’s financial situation best.
Advisor.com can help connect you with a financial advisor suited to your needs. All of their advisors are pre-vetted fiduciaries, meaning that they have a legal obligation to act in your best interest.
This grandmother likely had good intentions in setting up a life insurance policy for her grandchild, but there are other ways to go about creating a bright financial future for the baby.
For example, the baby’s mother and grandmother might consider opening a 529 plan, which allows them to tuck away funds for the child’s future education.
But if you’re busy with the day-in-day-out of parenthood, even a 529 plan might be overwhelming. This is where automatic investment platforms can help take some of the heat off.
Platforms like Acorns can help you invest your spare change without having to give it a second thought. How it works is simple: Make a purchase on a linked credit or debit card, and Acorns will round it up to the nearest dollar then invest the difference into a diversified portfolio of ETFs.
That $4.25 coffee on the way to daycare? It’s now a 75 cent investment in your child’s future. Over the course of 17 years a little bit of investing can go a long way.
If you want to up your involvement, you could also set up a recurring direct deposit. The best part? When you do you’ll snag a $20 bonus investment.
Alternatively, the grandmother could consider placing money in a low-cost index fund, which would likely yield higher returns than the cash value of a life insurance policy would. Plus, this type of investment doesn’t come with morbid strings attached — such as needing to contemplate the potential death of a grandchild.
If the grandmother has set up the life insurance policy for the baby with no plans of keeping up with the payments, the simplest solution is to just let it slide. The mother can simply stop making payments, or never start making them in the first place, which will eventually lead to a cancellation of the policy.
However, if the grandmother intends to keep up with the payments, the mother could broach the issue with her child’s best interests at heart.
As she navigates what could be a touchy conversation, the mother can share her thoughts on why the idea of a life insurance policy is upsetting, while also mentioning some of the other investing options mentioned above as an alternative. One way to tackle this issue is to look at how much the life insurance payments will total versus the cost of a college fund.
The mother should do her best to communicate her gratitude for the grandmother’s intentions, while also trying to avoid pointing out any flaws in the life insurance plan. Try to make it a team effort in moving away from the life insurance policy in hopes of pooling resources for the child’s future.
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This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
