Converting a Child's Life Policy To Adult Coverage

I have recently learned that a parent has been holding a life insurance policy for each of my siblings and I. It has been brought to our attention that we can now take these policies over.

What does this policy require? What are the cost of payments after a parent has been holding a policy that's been building over 25years? What do we require from our parents to take over this policy? Is this policy cashable? Will we be able to determine or configure the details of the policy once we take it over such as the beneficiary?

Answer:

Many of your questions will have to be answered by the insurance company. What I can tell you in general is that, unless your parents bought "term" life insurance for their children (which wasn't as popular 25 years ago), then your policy is likely a "whole" life policy.

A whole life policy builds up cash value as it goes, so it is very likely it is cashable.

As for the cost of payments, that will depend entirely on how much coverage you elect to have. Most policies purchased for children will allow you to increase your coverage to a certain maximum without a medical exam. This can be a real advantage. If I were you, I'd considered increasing your coverage to the maximum now, while the premiums will be at their lowest -- if you don't cash out the policy.

At your age, term life insurance is likely much less expensive than the cost of a similar amount of whole life coverage. If you are able to save on your own, I'd definitely cash your policy in. The reason is that whole life includes both the cost of the premium for your life insurance coverage, as well as an additional "savings" component. Then, you count on the insurer doing a good job of investing your money so that you get a good return. Frankly, I'd be looking at investing my money or putting it in a high quality interest account of some kind before I'd treat my insurance company like a bank. After all, it's not their first line of business.

Once you take over the policy, all the details -- like the designation of the beneficiary -- will be in your hands. It will be your policy.


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