Our Personal Finances

Life insurance for a child is a big, fat waste of money. Here is why I think so and why you might want to save the premium when you are setting up a budget.

I’ve had life insurance agents suggest to me that I should buy life insurance for my children. I always dismissed that offer quickly. In my mind there is absolutely no need for such an insurance policy. To be honest, I never thought that life insurance for children was really a product that insurance companies pushed that hard and people bought so often. I guess I believed that an insurance company would not shove these policies down people’s throats if there is no benefit to the customer. Boy, I was wrong. Like most companies, insurance companies are motivated by profit. And child life insurance must be great business for the insurance companies, since insurance companies seem to spend a lot of money advertising these policies. (If you don’t believe me, check out recent issues of parents’ magazines!) During my recent visit to Florida my sister-in-law told me that at her insurance agency the most successful sales people sell, for the most part, child life insurance policies and universal life insurance policies. Neither of these policies are ones I’d recommend! But – surprise, surprise – both types of policies offer the insurance agent high commissions.

Outside of the commission that insurance agents get, why is child life insurance such a waste of money? Let’s look at this problem purely from a financial point of view. The main purpose of life insurance is to replace lost income on which others rely when a death or disability occurs in the family. Most children in well-off countries like ours don’t work for a living! In fact, as every American parent knows, having a child costs a lot of money. To put it crassly – and I’m sorry to do this, but it’s only to make the financial point – the death of a child is a net financial gain because the parents will no longer have to provide for the child. Even taking burial costs into consideration, as well as the money parents save by not having to provide for the child any longer, the death of a child is a financial gain. So, when parents buy a life insurance on a child, they are buying insurance “against” a financial gain, not a loss. That’s the opposite of what any insurance should do.

So, what’s up with universal life insurance? Fast talking insurance agents say that a whole life or universal life insurance policy for a child is a really great idea because part of the higher premiums will be allocated to a savings account, and the “cash value” of the account grows and comes with tax benefits. But the fact is that the largest part of the first premium and a very large part of every other premium goes into the pockets of the insurance agent in the form of commissions. These policies benefit the savings account of the insurance agent far more than they help the savings account of the child. Worse yet, the return on the little money that is accrued is usually significantly lower than the amount someone can get if they use the same money to open a regular savings account. Said another way, the savings account pays far more in dividends than would universal life insurance for a child.

Okay, so why do so many people buy these policies? Well, I can’t say for sure. But I suspect two reasons. One, fast talking insurance agents make you believe that these policies are good and perhaps even necessary. Two, parents look at their children with love and not with a calculator, and since they value their children emotionally, they believe that love translates into financial investment. But, truth be told, the emotional connection with a child does not mean that the purchase of life insurance on that child makes financially sense.

Bottom line: if you are thinking about getting a life insurance policy on your child, I suggest you just say “no”. If you already have one, I suggest you cancel it. Put the premium you are not paying to the insurance company into a high yielding savings account. Either way, over time, you will have saved a nice chunk of money.

New Year’s Eve is my favorite day. It’s not because I’m big into resolutions – eventually, I break ‘em all anyway. (Same with vilkri-he.) Still, I love the day because it’s a symbol of renewal for me. I can say goodbye to the past, which means looking back at all the blessings I enjoyed and the triumphs I overcame, and I can look forward to the future, which means being hopeful about enduring and even overcoming whatever challenges come my way and optimistic about facing new joys to come.

What does this have to do with personal finance? I will get to it – and before I’m done, I’ll explain why I’m breaking one of Suze Orman’s cardinal rules, and I’m happy to do it. Indulge me while I relate a very personal story.

My husband and I, when we married, were at very unequal levels of income – his was far greater than mine. We bandied about with what we’d do about money when we got married. Ultimately settled on Suze’s rule that couples should keep their accounts and incomes separate and pay bills according to each one’s contribution to the household income. That is, if you make 50% of the income you pay 50% of the bills, but if you bring in 20% of the income you pay 20%. We tried that for a while. But two things changed that.

Just last week, my doctor detected a problem with my thyroid that cannot be uncovered with the normal thyroid tests, so I’m on my way to seeing a specialist. Maybe I’m on my way to getting it fixed! But you should know that some symptoms of this hypothyroid condition are memory loss and depression. I digress, but I say all this to tell you that long ago I balanced my checkbook daily (!) with pencil and paper (!) and knew where every single penny of my money went. But later in life, as I struggled with health issues, I didn’t have the stamina or memory for it. vilkri-he took over opening my mail pretty early in the marriage. It made me pretty uncomfortable at first, and I still feel quite guilty about it, but it got the bills paid on time. He does all the bill paying for us now.

The other thing is that changed is that vilkri-he lost his job in November ‘08. So now, I’m the sole breadwinner. I already wrote about this kind of freaking me out, but life is what it is. Thankfully, I got a new job and my income isn’t as low as it was when we first got together. But we long ago decided to merge our accounts. So we are no longer following Suze’s rule. Hey, there’s not enough cash flowing through our household to make a bunch of accounts worthwhile, anyway!

I tell you all this to the New Year to say that we’re beginning our 2009 in what seems to me to be an extraordinarily happy place. Ironic, no? We have one income in the house, and I still don’t open the mail. But I have a husband who did these things even when we were both fully employed – he took his “leisure” time to take over the home finances when I was not in a position to do it. And now, I can make a big contribution to the household when I didn’t think five years ago that would’ve been possible. What might seem to others to be the hardest of times, at least financially, is one of the happiest times to me.

I say this to you to tell you that if you are going to resolve something for the coming year, can I make a suggestion? I would ask you to resolve to ask for or accept help if you need it. I spent most of my life trying to succeed, be SuperWoman, or whatever you want to call it. And it took me many years to realize that I sometimes need help. And I’m so grateful to have it (and in the form of a very supportive husband). Indeed, if I have a resolution this year, it is to lessen my stress even more, if I can do it.

So, if you can use a little help this year, take it. Consolidate your bills, ask your family to accept your cutting back on gift giving to ease your debt burden, seek out debt counseling, or call your lenders to negotiate for better terms. Of course, you can always subscribe to vilkri to get some help there including a free budget planner. Hubby and I will even get help ourselves with vilkri.com! We’ve decided to make the site snazzier. Look for changes in the coming year, which I trust will be a spectacular one for all of us, even with such a bad economy looming. Happy New Year everyone!

This is the time of year when many bloggers write about New Year’s Resolutions. (Moolanomy, Get Rich Slowly, Brunette on a Budget, Frugal Dad, My Two Dollars, and The Frugal Momma.) I am not exactly joining that chorus, but I want to share with you what my goals are anyway. Even though I plan to achieve these goals in 2009, that is purely coincidental. I formulated these goals a while ago, and I don’t have a January 1 start date for working on them, so they really cannot be New Year’s Resolutions.

Why don’t I make New Year’s Resolutions? Suffice it to say that my track record of keeping such resolutions is less than perfect – it doesn’t matter whether I pick the new calendar year, Chinese New Year (don’t know when it starts anyway), or Rosh Hashana (the Jewish New Year). But I still like to set goals for myself, and try to live by them. So I set goals throughout the year without regard for any calendar.

There are a few things that make goals attainable, and I make sure to put these in when I create goals for myself. First, I make sure my goals are clearly defined. (You know, instead of saying “I’ll lose weight” I would say “I will lose about 10 pounds next year.) Then, I also make sure to have a date in mind to check on how I’m doing in reaching my goals. (To continue with the example, I’d say “I need to lose about a pound each month” so then I know that if I’ve lost no weight by March 1, I’m really getting off track.) If one of these elements is missing, either a set outcome, or a set of date-related milestones, then my goal is not likely to be as attainable. Instead of a goal, those missing elements leave me with a vague plan of what I think I should be doing.

So, here we go. You need to know that I’m a runner, if you don’t already know this. My first goal is to run a marathon faster than three hours. I am pretty close to reaching this goal, and I hope that I can break the three hour mark on April 20th at the Boston Marathon. But I plan to run a couple other marathons in 2009, so I have other chances to do it, but that’s not really my goal. I will focus on breaking three hours in Boston in April. If I fail there, I will set a new goal, a “Plan B,” if you will. I will see on April 20th whether I have achieved this goal as it stands right now.

My other goal is to, by June 30th, reach a certain amount of subscribers to the service we offer on vilkri.com - setting up a budget. (I hope you understand if I do not specify the exact number.) You see, I think we offer a service that can really help underserved people get a grip on their personal finances. In financially trying times like the current ones I think it is even more important than ever to act in a responsible way with money. Our service is built around users who want to improve their circumstance. My goal is to introduce a certain amount of users to our service because I expect will benefit greatly from using it. As with my other goal, I will decide on a “Plan B” if we don’t reach our number by June 30th.

I have been working on both of these goals for a while already. Several weeks ago I started my marathon training program. I have also been working on establishing our website on the internet by working with an Search Engine Optimization (SEO) system that already has yielded some good results. So I am already making efforts to reach my two major goals in the near future. I am not starting on January 1st.

My most important financial goal is also easily defined. I want to create an income stream that provides me with enough income to maintain my family’s lifestyle before the summer. (For those new to the blog, I recently lost my job.) I am not sure yet whether I best care for my family financially by establishing myself as a self-employed entrepreneur or by getting a regular job again. But time will tell.

And what comes after we I have achieved these goals? Well, I don’t really know right now. You might have guessed that I usually cross bridges when I get there. But one thing is for sure. If I can count both non-financial goals among my achievements in the next six months I will be very pleased with myself. As I have said before, all of us are pretty happy when things work out as planned. Such times usually make us feel pretty good about ourselves and our lives. The good times always take care of themselves. We only have to worry when things don’t work out as planned. (Hence, the need for “Plan B”!)

As we are heading into 2009, I would like to take a look back at the past. But I don’t just want to review the previous 12 months and check up on how well we did to lower debt, keep adding to our retirement account, etc. I’d rather look back even further and reflect on some lessons that previous generations try to pass on to us. Two of these lessons seem very wise indeed.

We already referenced one of these lessons in a previous blog (entitled “Setting up a Budget collides with ‘Bargain Shopping’”) It was about giving time rather than gifts to our loved ones. I made the case that our parents want to spend time with us rather than get stuff from us. So, that is exactly what my wife and I are doing right now. We are visiting with family in Florida! (Don’t think this is easy – I am not happier in Florida, even if I find the balmy temperatures here a nice change to the freezing temperatures up North. But I digress.) So, I’m talking about lessons today – what does it teach me to experience that our parents rather spend time with us than get things from us?

Well, I think that our parents’ generation looks at life differently from those of us in the middle of our productive years and still looking to acquire things. We really have no choice but to think about acquiring things since we need to save during our active years so that we can enjoy retirement in the future. Members of older generations (if they’re fortunate) are instead enjoying the fruits of their labors right now. So, our thinking is naturally different from theirs. But there is one thing that we can take from our parents’ attitudes. Our parents teach us what is really important in life - relationships of any kind. When we acquire things I think it is not a bad idea to think about how each acquisition affects the relationships we cherish. In old age we may regret not having spent enough time with out loved ones, we probably won’t regret not having spend enough time at work. So think about whether that extra work or extra expenditure is buying you what you really need from the relationships you desire to deepen.

The second lesson I want to highlight is from an adage I recently heard from an older fellow, although hearing it then was not the first time I heard it. I’m sure you know it too: “Less is more.” This really makes no sense, does it? Well, it doesn’t at first glance. But it makes sense when you think about it a little more. Everything that you own brings the responsibility of ownership along with it (and expenses usually, too). That responsibility takes time, money, and energy that you could use in other ways besides looking after your possessions. This also can be interpreted as saying that a happy life is really not dependent on how many things you own. On the contrary, the more things you own the more difficult it is to focus on the parts of life that make you really happy. That is why less stuff can indeed lead to a more fulfilled life.

In the future I plan to focus on these two lessons from the previous generations, especially as they relate to our family expenses and our financial planning. My driving question will remain “How do my financial decisions further my life goals to have good relations with family, friends, and society at large?”

But right now I am going to dig into the potato salad my mother in law is making for me. That is one mean potato salad and is definitely worth a trip to Florida. But see, there is a relationship between her potato salad and the lessons I’ve been writing about. There’s no doubt that the potato salad she made especially for me definitely improves our good relationship even further. She successfully invested her time and love in making it, and I and my stomach are so grateful! I won’t forget that.