Child-To-Adult Life Insurance
Before addressing these plans, let us do a little basic ‘Life Insurance Actuarial Pricing 101.’ In determining the cost or premium for the death benefit protection, Life Insurance Companies take in account the insured’s occupation, activities, health risk and life expectancy, the company’s administrative and work force cost, as well as the amount of profit they desire to achieve. As we stated in the article entitled Premium and Payments Options, ‘the rate is primarily calculated based on the insured’s age …based on the Commissioners Standard Ordinary Mortality Table…’ etc.
So the lesson is that reasonable insurers are not going to try to adjust cost based on life expectancy, nor do they vary much on the cost of doing business or profit goals; therefore, understand – what makes the difference in the cost of premiums – is their willingness to take on a little more risk in the insured’s occupation, activities or health. Yet, most young children have no occupations or hazardous hobbies and activities, but they do have very predictable life expectancies based on their known state of health at the time of the application process. Thus, when you examine Child-to-Adult options, you should remember there are no miracles in the method, only changes in the structure of how insurer’s offer plans.
• WAYS TO BUY CHILD-TO-ADULT LIFE INSURANCE:
1. AUTOMATIC STEP UP PLANS: These Child-to-Adult plans provide babies or young children up to a certain amount of coverage, which when they reach a certain age will increase typically at no extra cost. For example, the Gerber Life ‘Grow-Up Plan’ provides up to $50,000 of whole life insurance protection, and the face amount automatically doubles at age 18. The original premium is guaranteed never to increase.
2. OPTIONAL STEP UP PLANS: These types of plans have a built in option to increase coverage up to a defined amount at a certain age or ages. For example, Mutual of Omaha offers up to $30,000 in whole life insurance for children ages 14 days to 25 years; and then gives the policy-owner the option (for an increased premium) to increase the coverage up to $ 150,000 regardless of their health at that future time.
3. TRADITIONAL PLANS WITH A POLICY PURCHASE RIDER: This approach allows the buyer to purchase a term life insurance plan, or permanent life insurance plan (whole life or universal life), and for an extra cost of about $ 5 – $ 8 dollars a month per $ 100,000 – guarantee that the child can increase their coverage (at a increased premium) without evidence of insurability. These riders typically allow the increase in coverage at marriage, or every two to three years between the ages of 21 and 45.
|Before buying a life insurance policy, the buyer should compare the various types of life insurance plans that are designed to meet their desired goals. They should consider which insurers will benefit them more favorably. Additionally, when purchasing permanent life insurance, they should compare not only the premium cost, but also: the death benefit (level or increasing and the amount), the guaranteed rate of interest on the cash values, the projected or scheduled total cash values, and what dividends are scheduled to be paid into the plan. Insurers will normally provide you with illustrations upon request.|