I got life insurance for my 5-month-old baby. Here's why.

• I hand't considered life insurance until 2022.
• After doing research, I decided to get my 5-month-old child life insurance.

Life insurance had rarely ever crossed my mind until 2022, when I went through a traumatic childbirth and received the devastating news of my 29-year-old friend's cancer diagnosis, all while watching the market downturn wipe away half of our hard-earned savings.

These events made me start looking for a financial strategy to safeguard our family's future, and I stumbled upon life insurance with living benefits. Not only does it pay out upon passing, but it also offers coverage for critical illnesses, including cancer, providing financial support when needed most. Moreover, it can shield our savings from market volatility and pave the way for a secure retirement, offering a steady lifetime income stream.

This seemed like the ideal solution to my concerns, but I discovered some conflicting opinions from financial advisors and insurance agents. As a CPA with a passion for numbers, I decided to obtain a life insurance license to be able to calculate and assess its financial aspects. This ultimately led me to secure life insurance for my daughter when she was 5 months old.

Maximizing the power of compound interest with minimal fees

Life insurance costs are based on health and age. By securing a policy for our child at just 5 months old, we locked in the most favorable rate for her lifelong protection. Additionally, this lower cost allows us to contribute more to the life insurance policy's cash value and take advantage of compound interest for long-term savings.

For instance, if we start saving just $100 a month for our child now, she can accumulate $1 million by the time she retires. Waiting 25 years to begin the same savings plan would result in a significantly smaller sum — around $150,000.

Potential tax-free college funding without influencing financial aid eligibility

When structured correctly, a permanent life insurance policy can provide tax-free withdrawals, making it a valuable choice for funding college expenses without affecting eligibility for financial aid.

If a family has substantial funds in a 529 plan or other savings accounts, it can potentially reduce the amount of financial aid the student qualifies for. However, a life insurance policy doesn't count as an asset in this calculation, so it doesn't influence the level of financial aid available to the student.

Flexible use throughout a lifetime

While 529 plans confine their use to qualified educational expenses, imposing penalties and taxes if funds are redirected for other purposes, life insurance distinguishes itself with flexibility.

Through life insurance, our child gains access to potential tax-free funds for expenses beyond college. This money can serve various purposes, from financing a wedding to securing a down payment on a house and even providing a reliable source of income for retirement.

A financial safety net in market downturns

Withdrawing money from the stock market during downturns can be challenging due to the declining value of investments. In contrast, life insurance offers stability with a guaranteed floor.

For instance, with the 0% floor, the cash value in our policy won't decrease even if the stock market is underperforming. This is because the interest rate is guaranteed not to fall below 0%. Consequently, this means that our child can access the funds from her policy when she needs them, even in challenging economic times.

Lifetime protection with living benefits

Thanks to living benefits, the policyholder can tap into death benefits while still alive for qualified illnesses such as cancer, stroke, heart attack, and many more. This ensures we have the financial resources to cover advanced medical treatments and maintain, or even enhance, the quality of life to aid in the recovery process.

A Legacy for the Next Generation

Last but not least, life insurance can become a substantial asset to pass on to future generations, establishing a lasting legacy. By securing a policy now, we are not only protecting our child's future but also giving the gift of financial security to the next generation.

Hoang Anh Le, the founder of Luxury Under Budget, is a CPA turned financial educator, life insurance advisor, and entrepreneur.