Unplanned Expenses: One Day, Your Kids Will Need to Buy a Car
Scotty Reiss
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Are you ready for this eventuality?
This is the story I never wanted to write. My Dad died.
That was a year ago, and for the first time this holiday season our celebrations were dimmed by his unexpected death, sad memories and soft discussions about how we were feeling.
This story is part of a program associated with TruePath Financial, which offers life insurance, cash value life insurance and financial planning. A Girls Guide to Cars may receive a commission from links in this article but in no way does that sway our advice or opinion.
But there was a silver lining. Over the year, as we sorted through Dad’s will, his finances and his obligations, we discovered his caution and planning. He wanted to do a lot of things for us—his children and grandchildren. And he did: He paid for his funeral, he covered all his bills and he left us a number of cars. 5 to be exact. There were the two in his driveway, but there were also three more: one for each grandchild. He wanted to buy a car for each as they attended and graduated from college (one down, two to go).
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College is Covered… But What About a Car?
It was Dad’s kindness and foresight to know that college kids, at some point, need a car. They need it to move off campus and get to class, work and errands like laundry and shopping. They may need it for a summer internship or to visit their grandparents during school breaks. And having a car in college is a great lesson in responsibility; if they don’t take care of it, they are the one who’s stuck, not mom or dad (or siblings) who are late because lil’ bro forgot to get gas.
But so often, parents stuck in the vortex of college applications, rising expenses and FASFA applications overlook the car until it becomes an issue (hello, off-campus sophomore housing…). And then, its just another expense swirling around your head taunting it to explode.
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No, You can’t Just Uber
That’s pretty much where we were when our daughter started looking at off-campus housing. While yes, there were busses and ride share (have you looked at the up-charges on Uber rides in college towns?) and flights home, the reality of getting a car for her was much more feasible. But, it was a stretch for our budget. Not just the car, but insurance, maintenance and gas. On top of student loans, increasing tuition and now, an apartment. Ugh.
So Dad came up with a solution: he would buy a car and if she finished school, it would become hers upon graduation. If she didn’t graduate, she’d have to pay for it. That’s pretty good incentive and we happily agreed.
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It’s All in the Plan… Right?
Lucky for us, Dad had this covered, but not all families have that luxury. There are wills and gifts, of course, but is there better protection?
As we sorted through Dad’s finances I became even more aware that I could have taken control of the planning earlier. One way that I could have done this is with a cash value life insurance policy, but not the one you might guess, taken out on me or my husband. Instead, I could have funded a cash value life insurance policy for each of my children.
Here’s why: We know that a cash value insurance policy covers us in the event of death or you become sick, injured, severely ill or disabled, and that as you pay for it it accrues value, like a savings or investment account. As the cash grows you can withdraw it, borrow from it or, you can continue to let it grow until you need it. (This varies from term insurance, which only pays out upon death or specified trigger events).
529 College Savings Plan or Cash Value Life Insurance Policy?
I started thinking about all this before my dad became ill. And, I began to wish I’d set up a cash value life policy when I started the 529 Plan account for each of my children. The 529 Plan is great; we can use it to pay for qualified education expenses like tuition, room and board and books. But not for transportation. Not for a car.
With a cash value life policy we can withdraw a significant portion of the proceeds to pay for what we need—a car, additional expenses, or, if we don’t need to buy a car, we can let it sit and use it later. Each plan differs of course, and you should know the terms before you invest.
One plan that really rung true for us was the Gift of Life plan from True Path. This plan is designed for families with young children; it allows parents, or grandparents, to make regular contributions throughout the child’s life so that when they mature— high school, college age or older— they’ll have an asset they can use for whatever they need. Buy a car. Pay for college (because, 529 planning may not cover all your expenses). Or, if your kid gets that full ride, it becomes an asset that she can use when she wants.
Is This a Solid Investment Strategy?
My first question is this: Funds in -> funds out: is it a good return? True Path, like other financial plans, doesn’t make guarantees about returns but they do guarantee the basics: your account will never dip below your investment, unlike stock accounts or many other higher growth programs.
Here’s an example of how the True Path Gift of Life plan can grow:
Female, Age 5 years of age
Premium of $100/month, with increasing death benefit (allows you to put more money in the policy)
At age 24, $24k was put into the policy and the estimated value is $37k
At age 34, $36k was put in the policy and the estimated value is $80k
At age 69, $78k was put in the policy and the estimated value is $740k
Avoiding the Uncomfortable Conversation (or, Having it Only Once)
All of this insinuates the one thing we don’t want to talk about—and in my case, we didn’t: Dying.
The True Path Gift of Life plan covers your child in pretty much any instance: you can access the entire death benefit if your child dies or becomes sick, ill, injured or disabled; it also locks in a health rating for life insurance so even if they develop a condition later in life they are still insurable. And it gives them something to fall back on if your own planning comes up short.
In this world it’s becoming more and more difficult to plan for what we know the future will bring, and much less, what we can’t anticipate. But at least we can give our kids a head start.
To find out more, you can click this link and use the code TRUEPATHGGTC for dedicated help in exploring and designing your own plan.