Last week, Brendon talked about the Cobbler’s Children Syndrome in his post about Protecting Our Own. He spoke truthfully about an advisor and friend of ours who didn’t take care of his own life insurance needs before sadly dying too soon. In the same thought, I’d like to talk directly about the Cobbler’s Children.
Juvenile life insurance comes in all shapes and sizes; as a child term rider, single pay, 7 or 10 pay, with a base face of 5K up to 100K, the list goes on and on. When it comes to the question of whether or not children should have life insurance, the answer to me is yes, absolutely. Juvenile insurance is as much about death benefit protection as it is protecting future insurability and I suggest going for the best options straight out of the gate.
In my opinion, there are 3 features that one should consider when looking at juvenile insurance; rate class, death benefit limits and future insurability.
Most carriers underwrite juveniles on express format, no paramed, blood or UA. They pull a prescription report and look at the MIB and conduct a phone interview with the parent or guardian. Due to the limited information gathered, the best class available is typically Standard Non-Tobacco. When the juvenile turns eighteen, they can apply for a premium reduction/rate improvement and with limited underwriting, they could get Preferred or possibly best class. I would advocate using a carrier and product that offers preferred non-tobacco rates from the onset, with the same express underwriting format.
When thinking about the amount of death benefit, it is important to consider potential burial costs, but even more important is looking at the cost of grieving. When my wife and I purchased a policy for our son, I had to consider nominal burial costs in addition to things like counseling costs, how much work would be lost, and really how much it would cost us to recover and move on. Grieving is not a cut and dry process; easily achieved with a few weeks of Bereavement Leave, if one is lucky enough to have such a benefit. Grieving is indefinite, undetermined and can only be assessed at the time that it is happening. Given that perspective, I advocate for a higher death benefit to account for that. Many carriers have a maximum death benefit of 50% of a parent’s total death benefit. In my case, my son’s is $100,000.
I expect to be an old man, admiring my son’s many accomplishments well into my retirement. I don’t expect to collect his death benefit, which is why his policy is designed with his future needs in mind. My son’s policy features a guarantee insurability option rider that serves two purposes; it protects his future insurability and it provides options that I didn’t have at a young age, like cash values. I think the second most important thing about juvenile life insurance after the death benefit is recognizing that you can circumvent future complications in underwriting now and adequately plan for a child’s future life insurance needs. The guarantee insurability option rider on my son’s policy has an option to add $100K increments to his death benefit at 8 different election periods starting when he is 22 and continuing every three 3 until he turns 40. For the first two, at 22 and 25, I will still be the owner of his policy and I will elect those increases and continue to pay the premiums. What about the other elections? What if my son becomes uninsurable? He still has 6 election periods of 100K available to him and the great thing about his rider is that he can elect them early for qualifying events, such as a home purchase, birth of a child, marriage or, Buy-Sell/Keyman scenarios.
I’m passionate about protecting children’s insurability and I would love to discuss juvenile case design with you for yours and your clients’ children and grandchildren. As I mentioned in my opening, there is no one size fits all, don’t hesitate to reach out to me regardless of the case size.