As a parent, you've always encouraged your kids to save for the future. When they were little, this meant saving their allowance or paycheck from an after-school job. Now that they're grown, it means saving for retirement.
But the retirement landscape your kids face is going to be very different from yours. For one thing, people are living longer. That means means your kids will need even more money to support them through a longer retirement. Inflation, stock market ups-and-downs, and the uncertain future of Social Security are also reasons to worry.
Now, there's a way you can help. Shared dollar life insurance policies encourage families to work together to save, cover, and provide for multiple generations all at once.
Sharing Costs, Sharing Benefits
With a shared dollar policy, two generations contribute to the premium payments for a permanent life insurance policy. These policies accrue cash value over time. The longer a policy grows and matures, the more cash value there is to pull from later. Your kids can use that money to supplement their retirement, pay for healthcare, pay for long-term care, or deal with any other hefty retirement expenses.
There are two different ways to structure these policies, depending on who's covered:
- Parents are insured. In this case, you are insured by the policy. You name your children as your beneficiaries. Then, they help pay the cost of the monthly premium payments. Many parents see this as a fair way to teach their kids about saving, since they'll get the money back (via the death benefit) after you pass away. However, it might not be a good fit if you have health issues, which drive up the cost of the policy. The policy also won't build as much cash value as it would if a younger person were insured.
- Grown children are insured. In this case, your grown children are covered by the policy. You and your kids share the cost of that policy. Many families set this up so that the parents pay more in the early years, while the kids take over the bulk of the payments later, when they're more financially stable. Alternatively, you and your kids could split the cost 50/50. Since it's always going to be cheaper to insure younger, healthy people, this is usually the way I advise my clients to go. The policy also has more time to accrue cash value, making it a larger resource for your kids to draw from during their retirement.
No matter who's covered, there are a lot of ways I can help make sure you get the coverage that's right for you. For some clients, that means buying a term life policy (max coverage, minimal cost) and a permanent policy (cash value accrues). Then, as you reduce or eliminate financial obligations (the kids leave home, you pay off the mortgage), the term policy will end, and you'll only have the permanent policy that accrues cash value.
Talk to me about the challenges your family faces when it comes to retirement. I'll help you make a plan that brings financial stability to both generations. When you have a plan, you can relax and pay more attention to the people and things you love.