From Slate Magazine · Ilyce Glink · · 2m
My Mother-in-Law Wants to Save for Our Kids’ Futures. The Way She Wants to Do It Sounds Like a Scam.
Mother-in-law's life insurance plan for young kids may be a scam.
In brief
Mother-in-law's life insurance plan for young kids may be a scam. Mother-in-law's life insurance plan for young children is expensive and unnecessary. Originally reported by Slate Magazine.
Mother-in-law's life insurance plan
Mother-in-law sent emails about buying life insurance for young children with data but little explanation.
“My mother-in-law just sent my husband and I several emails about buying life insurance for our very young children (ages 2 and 4) with a lot of data and very little explanation.”
Two life insurance options
Whole life insurance has fixed premiums and a cash value the insurer controls, while universal life insurance has flexible premiums and a cash value invested in market-based sub-accounts.
“whole life has fixed premiums and a cash value the insurer controls, while accumulation variable universal life has flexible premiums and a cash value invested in market-based sub-accounts, like mutual funds, so it can lose money.”
Life insurance for kids is unnecessary
Children under age 5 don't need life insurance as they have no dependents or income to replace.
“Your 2- and 4-year-old have no dependents (they depend on you!) and no income to replace.”
Better savings options exist
529 college savings, UTMA accounts, and Trump accounts are cost-efficient ways to save for children's futures.
“You’ve found the most cost-efficient ways to save and six accounts (three for each) is plenty of financial accounts to keep track of for your two kids.”
Mother-in-law's past behavior
Mother-in-law talks about giving money to kids annually but rarely follows through on commitments.
“Honestly, she does this about once a year where she wants to talk about how she wants to give money to our kids and invest in their futures, but she rarely follows through (I can only think of one example off the top of my head).”
Mother-in-law's plan is expensive
Life insurance policies carry high fees and are commission-based products that make them extremely expensive.
“These insurance policies are not a scam, but they carry plenty of fees and are a commission-based product, and that commission makes these policies extremely expensive.”
Mother-in-law's gift limits
Mother-in-law is not at risk of exceeding gift limits for children's savings.
“I don’t think she’s at risk of going over the gift limits.”
Solutions for financial help
Solutions include income-driven repayment plans, disability benefits, and credit counseling for debt management.
“Call your servicer and ask about Income-Driven Repayment (IDR). At your income level, an income-based repayment plan could bring your payment to $0, and those months still count toward forgiveness.”
Debt management advice
Debt management programs lower credit scores significantly and may take years to recover.
“Going into a Debt Management Program (DMP) will lower your credit score significantly and it may take years to recover.”
Job search challenges
Young graduates with disabilities face significant barriers to finding employment in competitive fields.
“I have not been able to find a single school willing to hire a teacher in a wheelchair, despite my skills and experience.”
Social Security benefits
Social Security benefits may be available for children of disabled parents.
“If your father receives Social Security retirement or disability benefits and your disability began before 22, you may qualify for childhood disability benefits on his work record.”
Credit card debt
Young graduates have $13,000 in credit card debt and $20,000 in student loans.
“I have $13,000 in credit card debt across two cards from my last year of college, spent almost exclusively on rent and basic needs like groceries during my full-time unpaid internship.”
Student loan repayment
Student loans can be managed with income-driven repayment plans or disability discharges.
“According to StudentAid.gov, a Total and Permanent Disability (TPD) Discharge cancels your federal student loans and TEACH Grant service obligations if you cannot work due to a severe, permanent disability or chronic health condition.”
Next steps for mother-in-law
Mother-in-law should thank her for wanting to invest in grandchildren's future and redirect to existing savings options.
“I’d suggest having your husband thank his mother for wanting to invest in her grandchildren’s future. He can calmly redirect her back to these three options and ask her to choose her favorite.”
In short
Mother-in-law's life insurance plan for young children is expensive and unnecessary.
