Juvenile Life Insurance: The Young and the Riskless
by Chisom Dimiri, Product Analyst
The concept of juvenile life insurance is appealing for many parents and even grandparents as a great way to accommodate their family’s future needs. Juvenile life insurance has two key components: to establish insurability at a low price, and to be a possible source of cash for future needs.
As permanent life insurance, juvenile coverage often guarantees future insurability for a child regardless of their health or lifestyle. A policy is often written without the need for medical underwriting, which is helpful if health issues arise in the future. Juvenile coverage is intriguing because the premiums are inexpensive, and the health class is locked in once the policy is written. Additionally, many carriers allow short pay policies, so that the cost can be paid for early and accumulate before the need to pull any cash.
As a source of funds for future needs, juvenile coverage helps alleviate the stress of financial vulnerability. The tax-deferred cash value build-up inside a policy is oftentimes protected from creditors and lawsuits. Should an insured choose to attend college, a life insurance policy can take on the form of a financial planning tool. With the national student debt growing to nearly $1.4 trillion as of 2018, marketing solutions to the student’s debt loan crisis is increasingly becoming a key factor in consumer choices.1 Jobs are offering students entering the workforce a loan repayment plan in lieu of a 401(k) and colleges are offering more online degrees so students can work while in school to assist with paying for college. Life insurance can fill that gap and, unlike other college savings plans which may be used exclusively for college funds, can also be used for other major purchases like car payments, weddings, a house down payment, etc.
While most major life insurance carriers sell products in the juvenile market, some carriers stand out for their affordable premiums and competitive cash value. Whole Life (WL) and Indexed Universal Life (IUL) products are the main players in this market. Whole Life is the most popular option for juvenile ages, with certain companies like, Gerber Life, focusing exclusively on the juvenile market.
We examined the cost of 17 Full-Pay WL products. We evaluated the cash accumulated after 20 years, as this is a prime age for juveniles who might be going to college, buying a car, or purchasing a house. Contrary to our expectations, we found that products with the highest premiums did not necessarily have the highest internal rate of return (IRR) of cash value. In fact, some middle-market premiums showed some of the best returns. Relative to the competition, Penn Mutual’s Versatile Choice Whole Life, Guardian’s Whole Life 99, and Mass Mutual’s Whole Life Legacy 100 consistently stand out for their cash value IRRs in year 20. However, when it comes to ten pays, New York Life’s Custom Whole Life AD117 is an additional product to consider based on the cash growth.
When looking at juvenile insurance, IUL is not the traditional first choice. However, the optimistic cash build-up provides interesting options to consider. We investigated 21 IUL products, illustrating at 6%, to see how cash accumulates for juvenile ages in comparison to WL. When looking at premiums paying for ten years, IUL does well with their relatively inexpensive premiums and decent cash surrender value by year 20. American National’s Signature Performance IUL, Securian Financial’s Eclipse Protector Indexed Life, and Ameritas’s Excel Index UL all stand out for their IRRs in year 20, which are comparable to the top whole life returns.
One of the more noticeable differences is that the average IUL premium is a third of the cost of WL premiums. Depending on how the market performs, one could potentially get a similar return at a much lower cost. However, while whole life’s premiums are more expensive, the death benefit and a large portion of the cash value are guaranteed, and both have an opportunity to grow. Whereas with IUL, the cash may grow sooner at a less expensive premium, it does come with more risk and a less aggressive death benefit. So, when it comes to choosing between whole life and IUL, there’s a balance between the values, the build-up and the risk.
Ultimately, juvenile life insurance is about building a strong, financial foundation for a child that provides the tax-advantages of life insurance and the potential for a lifetime of benefits. It helps prop up the next generation and protects against loss of insurability later in life. Whether one is interested in a low-cost premium to secure a death benefit or build cash early on, life insurance for a child might help protect a loved one’s financial future.
The future is bright, and we here at LifeTrends are excited to follow it every step of the way.