My husband and I are currently switching our life insurance policies from whole life to term, thus resulting in better coverage for the same premium. We are wondering how you felt about keeping our life insurance as a form of inheritance for our three children (our youngest has severe autism). We are in our lower 40’s.
I understand the premium will go up as we grow older but we want to insure that all of our children, especially our son with a disability, is covered. He also has a special needs trust. – a reader
I applaud you for taking the bull by the horns and thinking long-term. It is not often that people, when still younger, not only think about but make preparations for the care of their children, in the event of your death.
I think it is important for anyone, whatever their age, if they have dependents, to make sure to have a lawfully executed will with guardians set up for their dependents. So many people do not have this and, instead, leave it to the state to determine who gets what and who takes care of the children, if both parents are gone.
The purpose of life insurance is to make sure your children have something to take care of them for their support and maintenance when you die. It should actually be called “death insurance” or “care insurance” but that is beside the point.
Because you have a special needs child, it sounds like you have done the necessary estate planning to make sure he is cared for with a special needs trust. This trust can be funded with life insurance by naming the trust as beneficiary of the life insurance. The trustee would then disperse and manage the money according to the terms of the trust, while the other children would be named as beneficiaries and get the money outright (unless they are minors at the time).
If you did not have the trust set up by an estate planning attorney, I would highly recommend it and have them look at the methods of funding. Most trusts go unfunded and the last thing you would want is to have this special trust not funded properly and your child not benefit from your planning. An ounce of prevention is worth a pound of cure.
That said, while at this point you can fund with that life insurance, your goal should be to fund it with other assets developed over time so you don’t just have to rely on the life insurance–especially if that life insurance is the term insurance. While you could always reapply for term insurance, which is wise to do when the term gets close to being up, it would be good to have a real asset there to fund the trust if that life insurance is no longer available.
Thus, I do not think that it is necessary for you to keep both the whole life and the term policies going simultaneously, especially when you can get quite a bit more insurance for the price of the whole life with term insurance. The term should work just fine as long as you keep on the ball with estate planning.
Again, I would recommend you talk with an estate planning attorney in your state to make sure all i’s are dotted and t’s crossed.
Jesse Paine is a licensed attorney who owns his own law firm. He’s married to Crystal and is the numbers nerd of the MoneySavingMom.com team! If you have a question you’d like him to answer in a future column, you can submit it here.
The content of this column intended for informational use only and is not to be construed as providing legal, investing, accounting, or other professional advice. Your situation is factually specific and you should accordingly seek qualified professional counsel concerning your specific legal, investing or accounting needs.