Should You Buy Life Insurance for Your Children?
If you’re a parent who has loved ones that rely on you financially, it is pretty much a no brainer that you should own life insurance. Life insurance allows you to take care of your loved ones if you are not around to provide for them. But should you buy life insurance for your children? Buying life insurance for your children can make sense in some instances. It will all come down to your particular circumstances and goals for providing the coverage. In this post we will look at the benefits and drawbacks to buying life insurance for your children.
Reasons Life Insurance for Your Children Might Make Sense
Cover Funeral Costs and Uninsured Medical Bills – The last thing any parent wants to think about is burying their child. Not only does it cause emotional distress, but it can also have a negative financial impact. The cost of a funeral can cost $10,000 or more in some cases. There are many families who do not have the finances to handle unexpected final expenses like a funeral or uninsured medical bills. A small life insurance policy could cover these costs.
Time Off of Work to Grieve – Losing a child is devastating. In most cases, there aren’t many parents who could return to work immediately following their child’s death. Taking a paid leave to grieve or taking an extended leave without pay is not an option for most parents. Parents along with surviving siblings could also need counseling after a child passes away. In many cases, medical insurance will not cover counseling sessions with a licensed therapist. Life insurance can give you the funds necessary to receive therapy and take time off of work to grieve for the loss of a child.
Lock In Future Insurability – Once you purchase life insurance for a child, you have essentially locked in their health rating no matter what medical issues may come in the future. This is important considering that your child could develop a serious medical condition like diabetes at a young age which could make rates too expensive or simply make your child uninsurable. No parent likes to think about the fact that their child could start smoking, taking drugs or drinking alcohol. If your child develops any kind of dependency on drugs or alcohol, they could become uninsurable.
Hereditary Factors – Your family history could predispose your child to certain illnesses like diabetes, heart disease or cancer. It might be a good idea to lock in a better health rating and lower rates while your child is young. If not, they could have issues getting coverage if they develop any health issues when they are older.
Cash Value Savings – Permanent policies such as whole life and universal life give you the opportunity to build cash on a tax deferred basis within the policy. This cash can be accessed in the future for such things as college tuition, a down payment on a home or to pay off debts.
A Gift for the Future – You can purchase a life insurance policy for your child and fund it until they become an adult. You can use a milestone such as their wedding, the birth of their first child or the purchase of their first home to give them the policy as a gift.
Some Drawbacks Buying Life Insurance for Your Child
There are Better Savings Options – If your primary goal is to use life insurance as a savings vehicle such as a college fund, there are better ways to save. When you purchase a life insurance policy, there are insurance costs and administrative costs that will be deducted on a regular basis. A 529 plan, on the other hand,has lower fees and the potential for greater growth than a whole life policy. Whole life policies have steady but conservative growth rates but unlike a 529 plan you’re not restricted on where your balance can be spent.
The Chance of a Child Becoming Uninsurable is Small – If you have a healthy family history, chances are that your child will be able to get life insurance without any issues in the future. Life insurance underwriting has come a long way. People with health issues such as high blood pressure and high cholesterol can still qualify for ‘Preferred’ rates. People are also living longer which is why life insurance rates have steadily declined for some time.
How do you buy life insurance for your children?
There are a few different ways to buy life insurance for your child.
Child Rider – You could simply purchase a life insurance policy for yourself and add a child rider. This is a much less expensive alternative to purchasing each child an individual policy. A child rider allows you to cover ALL of your minor children for an annual fee. This includes children 15 days to 18 years old and any born after the child rider is purchased. Child riders usually offer coverage amounts from $1,000 to $25,000. Each $1,000 of coverage is called a ‘Unit’. Industry rates are roughly $6 for every $1,000 of coverage. So if you wanted to add a $20,000 child rider to your coverage, it would cost $120 ($6 X 20 units) per year. That amount would cover ALL of your children until the age of 25 in most cases (it depends on the insurance company). Your child can also convert the rider to an individual policy of their own without proof of insurability. There are health questions that need to be answered with these riders, so if your child has any kind of severe medical condition, he or she could be declined.
Individual Policy – You could also opt to buy your child an individual permanent policy such as whole life coverage or universal life coverage. Permanent policies are more expensive than adding a child rider your own policy, but allow you to build cash value that can be accessed in the future by your child. Whole life policies offer fixed premiums, predictable cash value growth and many valuable guarantees. The downside is that whole life policies can be expensive and offer conservative returns. Universal life policies offer flexible premiums and the potential for higher returns than whole life products, but lack the guarantees offered by whole life products.
Employer Group Plan – Some companies that offer group life insurance as part of their benefits package allow you to add your child to your policy.
Make Sure You Have Adequate Coverage First
The thought of insuring your children might sound great but it should never be at the expense of your own coverage. Make sure that you have adequate coverage in place first before you consider buying life insurance for your children. For example, let’s say it costs $250 per year to buy your child an individual life insurance policy. That same $250 could buy a 35 year old male in excellent health almost $500,000 of term coverage for 20 years. Since you are more likely to die than your child, it is important that YOU have adequate coverage first. Your death will have a greater financial impact on your household than the death of your child.
Does Buying Life Insurance For Your Children Make Sense?
The answer ultimately depends on your goals for coverage. If you think that your child’s death will be a financial burden, then it probably makes sense to carry an amount sufficient to cover burial expenses. If your main goal is an affordable death benefit, the most cost effective way to do this is through a child rider on your life insurance policy. This will cover all of your minor children for a reasonable annual premium. If you are interested in a cash savings component in addition to a death benefit, buying an individual policy will allow you to accomplish this. Before you purchase an individual policy for your child though, weigh the benefits of the savings component within the policy against the fees and potential return to make sure it is worth it. If you are interested in a child rider for a policy of your own or an individual policy for your child, we can help. Give us a call today at 888-687-9444 or email us at info@archstoneagency.com for a free consultation.
About Us
Archstone Insurance Services, LLC is an independent agency that shops over 40 of the top life insurance carriers to provide huge savings on life insurance coverage for our clients. We are happy to answer any questions you might have about any of the insurance products we offer, your planning needs or your existing coverage. Feel free to call us directly at (888) 687-9444 or email us at info@archstoneagency.com.
