Life Insurance from a Baby Company

Yesterday my sister received mail from Baby Company Life Insurance. In the envelope it contained qualification letter, statement of coverage, application, free gift voucher and letter stickers.

I will need to clarify life insurance is not an investment and its designed to cover a persons death.

In this letter life insurance company informs client that they are eligible to apply for “Life Grow-up” and they are offering a whole life policy for a baby without proof of insurability (verifying they are healthy) once grown up.

They mention the cash value can be used to pay for college etc. which is true but they are letting out an important detail. The Cash Value (savings) is also called a loan and you need to pay back or policy is terminated. 

General rules of how  Whole Life Insurance works can be found here. 

Now lets look at another option that will insure the entire family w/ term life insurance and the option of creating a separate investment account.

Options for Babies: 

• Open an IRA (no age restrictions, but tax penalties if withdrawn before age 59.5) 
• College Savings Account (Tax deferred growth)
  • 529 Plan 
  • Education Savings Account also know as Coverdell accounts