Life Insurance For Children: Is It Necessary?

Life insurance for children is a real option, but it's not for everyone. It's usually purchased by a parent or guardian as a safety net in case their child passes away. It can be a term-based policy, lasting until the child becomes an adult, or a permanent life policy, which would allow the child to access coverage for their entire life at a locked-in lower rate. The pros include guaranteed future insurability, access to cash value, and help with funeral costs. On the con side, there's a poor rate of return, long-term expenses, and low coverage amounts.

Pros of getting life insurance for children

There are several pros to getting life insurance for children. Here are some key benefits:

Ensuring Lifelong Coverage:

Life insurance purchased for children guarantees that they will have coverage later in life, even if they develop a medical condition that would make buying their own policy difficult or expensive. This gives parents peace of mind and ensures the child's future insurability.

Locking in Low Rates:

Buying life insurance for children at a young age locks in lower rates. Life insurance premiums are typically lower for younger individuals, and these rates are locked in for the duration of the policy. This can result in significant savings over time.

Building Cash Value:

Whole life insurance policies for children accumulate cash value over time. This cash value can be accessed for various purposes, such as college tuition or other financial needs, providing an additional financial resource when the child reaches adulthood.

Helping with Final Expenses:

In the unfortunate event of a child's death, life insurance can provide funds to cover funeral expenses and other final expenses. This relieves the financial burden on grieving parents, allowing them to focus on their healing process without worrying about the costs associated with the loss.

Easy Qualification:

Life insurance policies for children often have simplified underwriting requirements, and medical exams are usually not necessary. This makes it easier for children to qualify for coverage compared to adults, who may need to undergo medical underwriting with doctor's visits and tests.

Cons of getting life insurance for children

While life insurance for children can be a good idea in some cases, there are also several drawbacks to consider. Here are some cons of getting life insurance for children:

Long-term costs

Life insurance for children requires a long-term commitment to paying premiums. This means that you will be paying premiums for decades, and if money gets tight and you miss a payment or cancel the policy, the investment may be lost.

Low rate of return

Whole life insurance policies for children build cash value over time, but they do so at a low rate of return compared to other investment options. For example, investing the same amount of money in a 529 college savings plan could result in much higher returns over the same period.

Alternative investment options

There are other ways to provide financial support for a child once they reach adulthood, such as a 529 college savings plan or other investment options. These alternatives may offer higher returns and be a better use of your money.

Low coverage amounts

The coverage amounts for children's life insurance policies tend to be low, typically $50,000 or less. This may not be sufficient to meet the child's needs later in life when they have a family of their own.

Financial trade-off

Buying life insurance for a child means committing money that could be used for other things to support the child's well-being. Since it is statistically unlikely that a child will die at a young age, your money may be better spent on more immediate priorities, such as building an emergency fund or saving for retirement.

When to get life insurance for children

Life insurance for children is typically purchased by a parent or guardian as a safety net in case their child passes away. It can also be used as a long-term savings mechanism, as the policy includes a cash value component that grows over time.

Age eligibility:

Children typically become eligible for coverage at 14 or 15 days old. The minimum age for life insurance ranges from 0 to 14 days, and most companies will insure a child up to the age of 18, though there are exceptions. It's important to note that the child doesn't need to provide consent to take out a policy, but the parent or guardian is usually the policyholder and beneficiary.

Type of policy:

There are two main types of life insurance policies for children: term life insurance and whole life insurance. Term life insurance provides death benefits and lasts for a fixed term, often until the child reaches adulthood. Whole life insurance provides death benefits, a cash value savings component, and lifelong coverage as long as premiums are paid. Whole life insurance policies are more expensive but offer more features, such as the ability for the child to maintain coverage as an adult.

Cost and affordability:

The cost of life insurance for children depends on the age of the child, the coverage amount, and the payment schedule. The younger the child, the cheaper the policy, as insurance companies lock in low rates at the time of coverage. However, it's important to consider the long-term costs of keeping the policy active, as premiums will need to be paid for decades. There are also alternative investment options, such as college savings plans, that may be a better fit for your financial goals.

Family medical history:

If your family has a history of genetic medical conditions, getting life insurance for your child early can guarantee their insurability at the best rates. This is especially relevant if your child is at risk of developing a health condition that may make buying their own policy difficult or expensive in the future.

Coverage amount:

Coverage amounts for children's life insurance policies are typically lower, usually $50,000 or less. Consider whether this coverage will meet your child's needs in the future, especially if they plan to have a family of their own.

Purpose of the policy:

Ask yourself why you're considering life insurance for your child. Is it to cover final expenses and funeral costs if the unthinkable happens? Is it to provide a financial safety net for your family? Or are you primarily interested in the savings component of a whole life insurance policy? Understanding your goals will help you decide if and when to get life insurance for your child.

In summary, there are several factors to consider when deciding if and when to get life insurance for your children. It's important to weigh the benefits of guaranteed insurability and lower rates against the long-term costs and alternative investment options. Additionally, family medical history, coverage amounts, and your specific goals for the policy can help guide your decision.

How to get life insurance for children

Life insurance for children is usually purchased by a parent or guardian as a safety net in case their child passes away. It can also be used as a long-term savings mechanism. Here are the steps and considerations to keep in mind when getting life insurance for children:

Step 1: Understand the Types of Life Insurance Policies Available for Children

Children's life insurance is typically offered in the form of term life insurance or whole life insurance. Term life insurance provides coverage for a specific period, while whole life insurance offers lifelong coverage as long as the premiums are paid. Whole life insurance policies also have a cash value component that grows over time.

Step 2: Evaluate the Need for Life Insurance for Your Child

Consider the following questions to help you decide if life insurance is necessary for your child:

• Does your child have a medical condition that will impact them for life?
• Does your family have a medical history that may put your child at risk early in life?
• Do you want to ensure your child's future insurability, especially if they develop health issues later?
• Are you interested in locking in lower premiums, as rates increase with age?
• Are you saving for the future and want a policy with a savings component?

Step 3: Compare Different Insurance Providers and Policies

Research and compare multiple insurance companies and their policies. Some popular providers offering children's life insurance include Aflac, American Family, Foresters, Gerber Life, Globe Life, and Mutual of Omaha. Consider factors such as coverage amounts, premiums, payment schedules, and any additional benefits or restrictions.

Step 4: Contact the Insurance Company and Provide Necessary Information

Once you've decided on a policy, contact the insurance company directly or through a licensed agent. You will need to provide basic information about your child, including their full name, date of birth, and Social Security number. There may also be some health-related questions.

Step 5: Weigh the Pros and Cons

Before finalizing the policy, carefully consider the advantages and disadvantages of purchasing life insurance for your child:

Pros:

• Guaranteed future insurability, even if your child develops health issues later in life.
• Access to cash value, which can be used for various purposes, such as college tuition or a down payment on a home.
• Peace of mind and financial support in the unfortunate event of your child's death, helping cover funeral expenses and providing time to grieve.

Cons:

• Poor rate of return on whole life insurance plans for children due to their lower mortality rates.
• Long-term expenses, including lifelong premium payments, which may become a financial burden.
• Low coverage amounts that may not meet your child's needs as an adult.
• Opportunity cost, as the money spent on premiums could be invested elsewhere to support your child's well-being.

Step 6: Make an Informed Decision

After considering all the factors, weigh your financial situation, family medical history, and the potential benefits and drawbacks. Consult a financial advisor or planner to ensure you make an informed decision that aligns with your goals and priorities.

By following these steps, you can navigate the process of obtaining life insurance for your child, ensuring that you have the necessary coverage in place while also considering the potential advantages and disadvantages of this type of policy.

Alternatives to life insurance for children

While life insurance for children is available, it's not always the best option for everyone. Here are some alternatives to consider:

Alternative Savings Plans

There are other ways to save for your child's future, such as a 529 college savings plan or other investment options. These include bank savings accounts, mutual funds, and other life insurance policies for adults with investment components. These options may offer higher interest rates and better returns on your investment.

Supplemental Life Insurance

If you're employed, consider taking advantage of supplemental life insurance offered through your employer. Some policies cover eligible dependents, such as children, which can provide an additional layer of protection without the need for a separate policy. Speak to your benefits coordinator to explore this option.

Child Term Rider

If you already have life insurance, you can add a child term rider to your existing policy. This rider can cover multiple children and provide a payout if a child passes away. The rider can be converted to a standalone policy for the child when they become an adult. Keep in mind that this option is typically available when purchasing a new policy and may not be added to an existing one.

Focus on Your Own Coverage

Before considering life insurance for your child, ensure that you have adequate coverage for yourself. Protecting your financial well-being and that of your loved ones should be a priority. Make sure you have sufficient life insurance to provide for your family in case something happens to you.

Frequently asked questions