Whether or not to purchase life insurance for children is a controversial subject on which financial advisors can’t agree. Before you buy this product, consider these pros and cons of life insurance for kids.
Pros of Children’s Life Insurance
Savings Vehicle.
Whole life or cash value life insurance on a child can be a savings vehicle to help set aside money for education or other expenses.
Guaranteed Insurability.
Purchasing and maintaining life insurance on a child can ensure his insurability in the future even if he becomes ill or disabled and, therefore, otherwise would be uninsurable.
Peace of Mind.
As with most kinds of insurance, an intangible benefit of children’s life insurance is the peace of mind for parents knowing that their child is covered, that they are saving for his future and that he will be insurable in the future.
Cons of Children’s Life Insurance
No Income Replacement Rationale. Life insurance generally is purchased to replace the income of the insured so that loved ones are financially secure after the insured’s death. This can apply to a non-working parent as well as a working parent, since the working spouse likely would have incremental child care expenses in the event of the non-working spouse’s death. Children, with a few rare exceptions, have no significant income, so this rationale for purchasing life insurance doesn’t apply to them. The exception, of course, is those few children, such as highly successful child actors or models, whose income contribution to the family is significant.
Unlikely to Become Uninsurable. The odds are very low that an individual won’t be able to purchase life insurance as an adult due to illness or disability. As a result, unless there is a strong family history of illness, there is little reason to purchase life insurance for a child because of concerns that he won’t be able to purchase it when he needs it as an adult.
Better Savings Vehicles.
Many financial advisors point out that there are better (and less expensive) savings vehicles for children than whole life or cash value life insurance. Two other options are 529 plans and Roth IRAs.
Money Better Spent on Other Insurance.
The money spent to purchase life insurance for a child may be better spent to buy additional insurance for his parents, especially if they are not adequately insured. Before even considering children’s life insurance, parents should be absolutely certain that they have enough insurance on themselves, since the financial hardship faced by the family if one or both were to die is far greater than if the child is to die.
You should also know what is a life insurance premium?
A life insurance premium is a payment made to the life insurance company, to pay for a life insurance policy. Premium can also contribute to growing the cash value of a permanent type of life insurance. This term is also applied to payments remitted for annuity contracts both fixed and variable.
If you do decide to buy children’s life insurance, know what your goals are for this product and be sure that the policy you choose meets your needs.
