The decision to buy life insurance coverage for your child is a difficult one. The thought of losing a child is unfathomable and, for many parents, it’s a bit too morbid to even consider. However, there are financial impacts that may warrant the purchase of life insurance for your child.
Of course, a minor doesn’t require coverage for the same reasons as an adult (namely, income replacement). Even still, there are strong financial benefits to purchasing juvenile life insurance. Let’s talk about a few of the most popular reasons to shop around for a policy.
One big selling point for buying your child life insurance is to protect their future insurability. Doing so early on allows you to lock in a low premium for them while they are still young, while also shielding them from future rate hikes in case of health concerns.
When a life insurance policy is purchased for a child, it’s typically done with very minimal underwriting and at the lowest possible rates. With a whole life or universal policy, this rate is locked in permanently, allowing your child’s policy to continue with them for the rest of their life at a more affordable monthly cost.
Even if they were to develop medical issues later in life – or simply take up risky hobbies, like scuba diving – they wouldn’t have to worry about being denied coverage or only being approved for a high monthly cost. The premiums you pay when your child is two years-old are the same premiums that they will pay at 30 years-old, for the same amount of life insurance coverage.
You can even choose policies that are prepaid, or those called “limited pay” universal plans. With such policies, you pay the premiums for a specific amount of time, after which the policy is considered paid. Coverage continues for the rest of your child’s life, without the need for another penny to be paid toward premiums. They will still hold that same amount of coverage for the rest of their life, without having to shop around for policies and deal with the future stress of an underwriting process.
While you can’t buy term life insurance as a standalone product for your child, you can buy a child rider when purchasing your own term coverage. Many of these policies offer guaranteed insurability, but with stricter limits, allowing your child to convert their term coverage into a permanent policy once they reach the age of majority (between 18 and 25 years of age).
However, this conversion is usually limited to a specified multiple of the original policy amount. So, if your original child rider was for $10,000 in coverage, your child may be limited to $50,000 in guaranteed whole life coverage.
This isn’t quite as secure as a locked-rate, locked-coverage permanent life insurance policy, of course. But buying a term rider for your child while he or she is still very young offers guaranteed insurability later on. This will give your adult child peace of mind when it comes time to convert the policy later… even if their health or hobbies have changed over the years.
Building Wealth for the Future
A whole life policy will protect your child with life insurance coverage, even well into old age. Beyond that, though, it also allows you to build up wealth for them in the process.
One of the biggest benefits of whole life coverage is the cash value that accumulates over time. Each month, your payments are split, with a portion going toward premiums and the rest going into a savings vehicle. These savings grow over time, tax-deferred, and are investable or can even be borrowed against when the need arises.
As your child gets older, he or she can use this money for any number of reasons, such as college tuition expenses, a down payment on a home, or their wedding. It can even be listed as an asset when applying for a future loan, like your child’s first mortgage.
Such a gift can be given to your children as a way of establishing wealth in their name. This policy will continue to earn a decent return throughout their life, providing them with a tax-sheltered savings account and giving their own future family the peace of mind that a lifelong insurance policy brings.
Unexpected Expenses and Emotional Loss
There are few things more tragic and life-altering than the death of a child (thankfully, this is statistically very rare). This makes life insurance valuable when it comes to basic peace of mind.
The most direct financial impact comes in the form of final expenses and a funeral. These can easily add up to tens of thousands of dollars and, for some families, this could result in significant and unexpected debt. Carrying a small life insurance policy for your child – particularly if you don’t have the savings available for these kinds of expenses – might be a good idea.
Beyond that, though, a juvenile life insurance policy can provide for a family’s needs during the grieving period to follow their loss. Parents would be expected to take significant time off of work, but many could not afford to do so. A life insurance policy can provide the financial padding necessary to make that grieving process possible.
A policy payout can also allow the parents, siblings, or other family members to receive much-needed counseling following their loss. This type of therapy is not always covered by health insurance, and the out-of-pocket costs could be significant.
The only thing worse than the loss of a child would be enduring such in addition to a significant financial burden, the inability to take much-needed time off work, and the lack of funds for services like grief counseling. A small life insurance policy on your children can offer peace of mind for each of these.
Lastly, families often wish to honor a child’s memory with the creation of a memorial or even a charity in their name. Life insurance coverage can allow for the funding of such tributes, ensuring that the child’s memory lives on in a way that best honors them.
Should You Buy Coverage?
Buying a life insurance policy for a child is a consideration that many parents don’t even want to entertain. However, there are a number of financial benefits to purchasing coverage at a young age.
A policy for a minor isn’t “necessary,” at least not in the same way that it is for adults. Children don’t typically have an income that would need to be replaced in the event of their passing. However, there are still financial impacts to consider.
A life insurance policy for your child shouldn’t be your family’s primary concern. Instead, focus on building a strong emergency fund, picking adequate health insurance coverage, and maybe even putting money aside for their education in the form of a 529 savings account.
If you’ve done each of those, then a life insurance policy may be your next stop. It can allow you to build wealth for your child, from which they can draw in the future. They will gain guaranteed insurability, regardless of future medical issues or even hobbies. And, of course, it offers your family an added peace of mind in the meantime.
If you want to learn more about your options when considering juvenile life insurance coverage, contact us. Our licensed life insurance experts are available to discuss your unique needs and even give free quotes for coverage.