Sunday, July 17, 2016

Buy life insurance on your kids

Have you been reading the articles about the "crackdown" on student loans left by children who have died? If you co-signed on the loan, guess what? You are on the hook. And you should be.

Why should the public be on the hook for the education of a student (or former student) who dies? The money was borrowed, usually with the intention of re-paying it. (Whether or not to borrow $50,-100,000 (or more) for a college education is a question for another day.)

More and more stories are appearing in the media. And some parents are learning that, since they co-signed for the loans, they are liable for the remaining balance.

And why not?

Remember the rule that the big print gives it to you, and the little print takes it away?

Before you sign any papers for a student loan (or any other loan, such as for a car or home or even a credit card), sit your kid down and ask, "How do you plan to re-pay this loan?"

"And what happens to the loan balance if you die or become disabled?"

Here's the answer you'll get. "I dunno." Well, don't co-sign until she or he "knows".

Buy life insurance on your kid. Often, parents say, "I don't need life insurance on my kid." Ask some of the parents who are crying now over a $100,000 student loan that they are being asked to pay. Keep n mind that there might be a balance on that loan for many years.

One question is when to buy the insurance. Another is, what kind of insurance should be purchased? And how much?

If your kid is 22 and in good health, you (he or she) can buy a lot of term insurance for practically nothing. The reason the premium is so low is that the insurance believes the risk is low.

Term insurance might be the right, but temporary, solution. Dave Ramsey will tell you to buy only term insurance. Well, he's wrong. Talk to a life insurance professional. Talk to an agent of a first-class mutual life insurance company (ex., Northwestern Mutual Life).

The best long-term life insurance will be Whole Life. Yes, it costs more in the beginning. The only poster I kept from 18 years in the life insurance business reads, "In the beginning there is price. In the end, there is cost." This is true, whether you are buying life insurance, cars, homes, clothing, etc.

Sometimes a good solution is a combination of Whole Life and Term. A good agent will guide you well. Don't necessarily rely on your good, ol' buddy who has been selling you your car insurance for years. There is every possibility that he doesn't have a clue about proper life insurance planning.

Insurability of your kid may be a factor, due to health or other risks. Maybe he just graduated from Annapolis and is practicing take-offs and landings on an aircraft carrier? His premium will be a lot higher than Standard. In fact, he might not even be able to buy private life insurance at all. But, if you had purchased a policy for him while he was in grade school, middle or high school, he'd had the policy and, quite likely, the right to purchase additional insurance at standard rates at certain times in the future.

As with all risk, if you can assume the risk yourself, don't insure against it. But then you might ask yourself, why do I carry car insurancc? Or homeowner's insurance? Or a tenant's policy on my possessions in my apartment or rental house? Or health insurance? (Well, Obama took care of that question for you!)

Will you be co-signing a student loan in the future? Think about acting now to reduce your risk.

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