Baby Life Insurance: A Necessary Precaution For New Parents?

Life insurance for children is a contentious issue. While some parents may view it as a safety net, others may consider it unnecessary, given that no one is financially dependent on a child. The primary purpose of life insurance is to provide financial support to dependents in the event of the policyholder's death. However, there are situations where taking out a policy on a child might be beneficial.

The advantages of child life insurance include:

- Locking in low rates: Buying a whole life insurance policy for a child guarantees low premiums for their entire life, which can be useful if the child develops health issues later on.

- Future insurability: Child life insurance policies often include a guaranteed purchase option, allowing the child to buy additional coverage without a medical exam, which can be beneficial if they develop health conditions or choose a risky career.

- Accumulation potential: Whole life insurance policies accumulate cash value over time, which can be used for various purposes, such as a down payment on a home or funding a business opportunity.

- Tax advantages: Under current law, the cash value accumulated in a life insurance policy is tax-deferred, and there are usually no tax consequences when accessed.

- Funeral expenses: In the unfortunate event of a child's death, a life insurance policy can help cover funeral costs and allow parents to take time off work to grieve.

On the other hand, there are several drawbacks to consider:

- Low rate of return: Whole life insurance policies have a low rate of return compared to other investment options, such as a 529 college savings plan.

- Long-term commitment: Paying premiums on a whole life insurance policy can be a financial burden, and cancelling the policy may result in a loss of money.

- Low coverage amounts: The coverage amounts for child life insurance policies are typically low and may not be sufficient for an adult with a family.

- Financial trade-off: The money spent on child life insurance could be used for other priorities, such as building an emergency fund or saving for retirement.

Ultimately, the decision to purchase life insurance for a child depends on various factors, including family medical history, financial situation, and personal preferences. It is essential to weigh the pros and cons carefully and consult a financial advisor before making a decision.

Baby life insurance can cover funeral costs

Baby life insurance can be used to cover funeral costs, which can be extremely high. The average funeral with burial costs up to $9,000 or more, and the median cost of a funeral is $8,300. The death benefit from a child's life insurance policy can help cover these expenses, ensuring that the family does not incur any additional financial burden during an already difficult time.

In addition to funeral costs, baby life insurance can also cover other final expenses such as unreimbursed medical expenses and grief counselling. This can provide much-needed financial relief for families, allowing them to focus on their emotional recovery without the added stress of financial worries.

Baby life insurance policies are typically whole life insurance policies, which means they provide coverage for the child's entire life as long as the premiums are paid. The premiums tend to be low and locked in, so they won't increase over time. This can be a good option for parents who want to ensure their child has coverage no matter what happens in the future.

When considering baby life insurance, it's important to weigh the pros and cons. While it can provide financial protection in the worst-case scenario, the chances of a child dying are very low. Additionally, there may be alternative options, such as adding a child rider to an existing policy, which can provide similar coverage at a lower cost. It's also important to prioritize the parents' own life insurance coverage first, as it can help cover the family's living costs and other expenses if something happens to them.

Overall, baby life insurance can be a valuable tool to cover funeral costs and other final expenses, providing financial peace of mind during a difficult time. However, it's important to carefully consider the needs and budget of the family before making any decisions.

It can act as a savings account for the child

While it may seem counterintuitive to take out life insurance on a newborn, there are some advantages to doing so. One of these is that it can act as a savings account for the child.

Whole life insurance policies build cash value over time, which can be used for various purposes. The policy's cash value can be accessed by the owner for things like paying college costs or buying a first home. The policy can be transferred to the child when they reach adulthood, and they can choose to continue building on the cash value or cash out and cancel the policy.

Whole life insurance policies also offer guaranteed coverage that lasts into adulthood without any premium increases. This can be useful if the child develops a health condition or takes up a dangerous hobby later in life, as it can be difficult and expensive to get life insurance coverage in these cases.

However, it's important to note that whole life insurance policies have low rates of return compared to other investments, such as a 529 college savings plan. Additionally, the cash value of the policy can be accessed at any time, which may not be ideal if you want to save specifically for your child's future.

Overall, while baby life insurance can act as a savings account for the child, there are alternative investment options available that may offer higher returns or more specific savings goals.

It can provide financial support for the child's future family

While it may seem counterintuitive to take out life insurance on a newborn, there are some benefits to doing so. One of the main advantages is that it can provide financial support for the child's future family. Here are some reasons why baby life insurance can be beneficial in this regard:

Locking in Low Rates and Guaranteeing Insurability

Life insurance rates generally increase with age. By taking out a policy on a newborn, you can lock in lower premiums for the child's entire life. This means that even if the child develops a health condition later in life or takes up a dangerous hobby, they will still have affordable coverage as an adult.

Accumulation Potential and Tax Advantages

Whole life insurance policies accumulate cash value over time, which can be used for various purposes, such as a down payment on a home, paying for college, funding a business, or retirement. Additionally, under current law, the cash value that accumulates in a life insurance policy is tax-deferred, and there are typically no tax consequences when it is accessed.

Financial Head Start and Long-Term Impact

The value of a life insurance policy grows over time, providing the child with an invaluable financial head start. It can be a wonderful gift that lasts a lifetime and has a long-term impact on the child's financial well-being.

Financial Safety Net for the Family

In the unfortunate event of the child's death, the policy's death benefit can provide financial support for the child's future family. The beneficiaries can use the payout to cover funeral expenses, grief counselling, or other expenses related to the loss.

Alternative Investment Option

While there are other investment options, such as a 529 college savings plan, life insurance for a child can provide a unique opportunity to accumulate wealth over time, offering both financial support and peace of mind.

It can be a good investment if the child develops a medical condition later in life

While it may seem counterintuitive to take out life insurance on a newborn, there are some advantages to doing so. One of the main benefits is that it can provide funds for burial expenses and other final costs in the tragic event of a child's death. This can be especially helpful for families who may not have the financial means to cover these unexpected costs.

Another reason to consider baby life insurance is if your child develops a medical condition later in life. If your child is diagnosed with a chronic illness or genetic condition, having a life insurance policy in place can help guarantee their future insurability. It can be challenging and expensive to obtain life insurance coverage for individuals with pre-existing health conditions. By taking out a policy on your child while they are still young and healthy, you can ensure that they will have access to affordable coverage as they get older, even if their health status changes.

In addition, some types of baby life insurance policies, such as whole life insurance, can also serve as a savings vehicle for your child's future. These policies accumulate cash value over time, which can be accessed for various purposes, such as education or a down payment on a home. This can be a way to invest in your child's future and provide them with financial security as they transition into adulthood.

However, it is important to note that there are also alternative investment options available, such as 529 college savings plans or custodial accounts, which may offer higher returns. Before purchasing baby life insurance, it is recommended to consult with a financial advisor to explore all available options and determine the best course of action for your family's specific needs and goals.

It can be a thoughtful gift from grandparents

Life insurance for babies is often marketed as a thoughtful gift from grandparents. While it may seem like an odd present, it can be a valuable investment in a child's future. Here are some reasons why baby life insurance can be a good choice:

Financial Protection

Baby life insurance can provide financial protection in the unfortunate event of a child's early death. The policy can cover burial expenses, funeral costs, and grief counselling, ensuring that parents don't have to worry about financial burdens during their time of grief.

Accumulation of Cash Value

Whole life insurance policies for babies, such as the Gerber Life Grow-Up Plan, can accumulate cash value over time. This means that the policy can act as a savings vehicle, with the accumulated cash value being used for future expenses such as college tuition, a down payment on a home, or starting a business.

Guaranteed Future Insurability

Baby life insurance policies can guarantee a child's future insurability, even if they develop health conditions or choose a risky career later in life. This means that the child will be able to purchase additional coverage without undergoing a medical exam, which can be extremely valuable if they develop health issues or take up a dangerous hobby.

Low Premium Rates

Life insurance premiums generally increase with age. With baby life insurance, grandparents can lock in low premium rates for the child's entire life. This means that the child will benefit from unusually low rates, which can be a significant advantage as they grow older and start their own families.

Tax Advantages

Under current tax laws, the cash value that accumulates in a life insurance policy is tax-deferred. This means that there are generally no tax consequences when accessing the cash value. Additionally, the death benefit received by beneficiaries is typically not taxable.

Peace of Mind

For grandparents, taking out a life insurance policy on their grandchild can provide peace of mind. It enables them to ensure their grandchild's financial security, even if they are not around to provide support in person.

Frequently asked questions