Life Insurance for Kids
Buying life insurance for children is a controversial issue. While some financial experts argue that it is an affordable way to set money aside for a child's future, others say that there are more rewarding options for saving. The American Council of Life Insurers reports that only about 15 percent of children in the U.S. under the age of 18 are currently covered by life insurance with policies generally providing only a few thousand dollars in coverage. While there are both pros and cons to the argument of whether to buy life insurance for kids, parents have to do what makes the most sense for the family. However, there are a number of different factors to be taken into account.
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Look at other investment opportunities. The money you pay in life insurance premiums could be invested in a mutual fund instead. You will earn better returns and not lose a percentage of the money in paying insurance agent sales commissions and other expenses. Although tragic, the death of a child typically does not affect a family's finances. Since the chief purpose of life insurance is to help a family maintain its standard of living by replacing income lost should the primary wage earner die, many financial planners advise that buying life insurance for children is unnecessary.
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Purchase adequate life insurance for yourself and your spouse. You want to aim for a reasonable amount of coverage, but not at the cost of premiums preventing you from investing and saving for the future. If you are not looking to life insurance as an investment, a term policy may be the most practical way to go. These types of policies pay a death benefit, giving you more protection for the premiums you pay out. The important thing is to take steps to assure that your spouse and children will be provided for should you die.
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Think about buying a low-cost policy for your child, especially if burial expenses would create a financial hardship for your family. This will give you at least a small amount of coverage should something unexpected happen. Some families believe that they need the protection offered by a life insurance policy for a child. However, if your family simply cannot afford to pay the premiums to insure a child, then it is probably better not to take out a policy.
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Consider whether your child might have trouble getting insured later on in life. A family history of chronic health conditions such as heart disease, asthma, diabetes or cancer could make it difficult for your child to get insurance during his or her adult years. Buying life insurance for a child often guarantees being insured as an adult. Life insurance may be more affordable as well. Getting insured early in life can help a person avoid paying incredibly high premium rates later on if serious medical problems arise.
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Explore the advantages of purchasing permanent life insurance for your child. One major advantage of this type of policy is that the premium is fixed for life. Premiums tend to be more expensive than for other life insurance options because they are calculated on policies being held over a long period of time. While term life insurance policies are cheaper, a whole life insurance policy remains in effect for a person's entire lifetime. The younger a person is when the policy is purchased, the less the monthly premiums will be. The best time for parents to take out a whole life insurance policy for a child is during infancy. However, if there is doubt that, as an adult, your child will pay the annual premiums to continue the policy, you may be wasting your money.
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Find out more about the Child Rider option offered by most life insurance companies. Policyholders are charged an additional premium to add life insurance coverage for their children to their policy. The annual premiums are usually quite cheap, although riders are often limited to about $5,000 to $10,000 in coverage for a child. Although many policies only insure a child up to age 18, in some cases, coverage can be continued until a child reaches the age of 25. Some companies then guarantee that adult children can purchase life insurance coverage of their own without having to pass a medical examination or prove that they are insurable.
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Tips & Warnings
Whole life insurance policies accrue a guaranteed cash value over time against which the policyholder can borrow money or receive a lump sum of cash when canceling the policy.
