Universal life insurance a good idea for dev. disabled heir?
I have a developmentally disabled daughter. I would like to be sure leave her money when I do die. I have a 30 year term life insurance, I'm 35 now. I'm afraid that when I'm 65, I will not be able to get life insurance so she will for sure have something to take care of her when I'm no longer there. Would universal life insurance be good in this scenario? The agent says I can stop making payments when I'm 60 (of $100 a month) and there will be a payout of $250,000 even if I live to be 100. Will she also have to pay taxes on that life insurance?
Public Comments
- It is a good idea if the company is credible. Research about the insurer. Check how many years is company in business, its rating, look for testimonies on independent web sights, check http://www.ripoffreport.com/. Make sure that you read and understand the policy when it arrives. Not too many Universal Life policies offer paid up option. Life insurance proceeds are never taxable.
- Is your term insurance guaranteed renewable? Meaning, your term insurance can be renewed without having to provide proof of insurability. If not, is it convertible to another term policy? If not, then you need to find a company that allows these two features. As for the universal life insurance, the agent is ripping you off by recommending you this product. In any type of insurance whether its life or car insurance, when you stop making payments, your policy will lapse. Since universal life insurance builds cash value, your policy won't lapse right away, but eventually it will when there's no more money in the cash value. When you stop making payments at age 60, the insurance company will use the cash value to pay for it. A loan interest of 6-8% will be charged. When you die, the loan balance will be deducted from the face amount. So your daughter won't get the full $250,000. This is how a universal life insurance works: 1) Your premiums are paid for two things: the life insurance and the cash value. 2) While premiums may remain level, the internal cost of the life insurance goes up every year. That means, less and less of your premiums are going into the cash value and more into the insurance. 3) At some point in time, your policy will lapse well before you reach 100 years old because the internal cost of the life insurance is so high that your current premium payments are not enough to pay for it. 4) When you borrow money from the cash value, a loan interest of 6-8% will be charged. If you die, the loan balance will be deducted from the face amount. If you surrender the policy while there is a loan balance due, you will pay income taxes on the loan balance. 5) Upon your death, all cash value in the life insurance policy will be kept by the insurance company. In my opinion, universal life insurance is not the right product for your situation. You should keep your term insurance and with the $100/month you could be paying toward universal life, I would use the $100 and put it into a Roth IRA every month into mutual funds. If you get a 12% rate of return, in 30 years you can potentially have about $353,000 in your retirement account. As for your final question about taxes, death claims are not taxable.
- LIA hit the nail on the head. Universal/whole-life is a rip-off. The only ones who will tell you different are the ones who sell it. By all means take the $100 (preferably more if possible) and invest it in a Roth IRA in growth stock mutual funds. If possible max it out at $5k per yr (beginning next yr-$4k this yr.) Ultimately, by the time your term expires in 30yrs., you want to be what is know as self-insured. That means, when you die, you have enough in investments for your heirs to be taken care of.
- Well, is that term policy renewable and convertable? That might be a better option, than buying this new policy. I'm not crazy about universal life, but clearly, your need is NOT going to go away. You probably need to talk to a financial planner, and an estate attorney. You most likely do NOT want to leave the money directly to her - then her legal guardian can do whatever they want. You probably need to set up a trust, and you'll need an estate attorney to do that properly.
- Most special need trusts are funded with second-to-die life insurance if both parents are still around. If not, then a guaranteed universal life is often a good second choice. The question is really if you do it now or later. If your 30 year term is convertible for the entire 30 years (and if it's not, go find another agent), you at least have the option of waiting till later to convert the policy if something does happen to your health. Insurance does generally become more expensive as we age, but the rate of return on it usually increases. Also make sure that you do not leave money directly to your daughter while she's a minor or could be declared legally incompetent. If she is left with money in either of these cases, she will not be the first one who has the ability to spend it all. A simple trust will ensure the money is used according to your wishes.
- You need to speak with a qualified special needs expert as life insurance payouts to your daughter may affect her eligibility to obtain state and federal benefits in the future...needs to be planned carefully. Metlife has a lot of information on their website called met help desk geared towards special needs planning. You dont need to use their policies if they arent the most competitive but the information will help you with your planning. On the coverage mentioned, look at the illustrations to see if you can stop making payments based on guarantees or is this based on the current assumptions.
- LIA is correct in (almost) all of his/her info. EXCEPT: You can stop paying premiums whenever you want and have the policy NEVER Lapse if the company has that type of product. It's called Guaranteed Universal Life Insurance. Not a cash value product, but sounds like cash value is not a concern for you. Speak with someone who knows ALL the types of life insurance out there. There are policies out there that allow you to specify how much money you would like to put in, and how long you want to pay, they tell you the insurance amount, and the policy will NEVER LAPSE. There are Fortune 500 - Stable companies that offer it. Just be careful with using an "Agent" because they usually can only sell THEIR companies product, and they may not offer it.
