Life Insurance & Children
When you buy life insurance for children, you must be aware of how the insurer views this transaction and why insurers often limit coverage for children. On top of that, you must determine whether buying life insurance for your child is a worthwhile endeavor. Know the benefits and disadvantages before you buy a policy for your child, and you'll have a better idea of whether a buying insurance for your child is worth the money.
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Significance
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Life insurance for children is allowed up to certain limits. Many insurers will limit the purchase of death benefits to $25,000 or $50,000, and then allow increases as the child becomes older. Some companies even advertise whole life insurance as a good policy to start out with since whole life builds a cash value savings that may be used for any purpose when the child grows up.
Benefit
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The benefit of buying whole life insurance on children is that the premiums will be lower than they will be when the child grows up. Insurance costs are lower the younger an individual is. If you buy a cash value policy, the cash value reserve may be used for any reason during the child's lifetime. This might include the child's first car, his college education or even a down payment on his first home.
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Disadvantage
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The disadvantage to buying life insurance on your child is that the life insurance policy may be too expensive given your current financial situation. If you are dealing with the normal expenses associated with having a child, and if you are having your first child and are unfamiliar with the costs associated with having a child, your costs may be higher than you anticipated. If you buy a policy and later decide you cannot afford it, then you run the risk of wasting those premium dollars and not recovering them; many whole life policies do not build significant cash value in the early years of the policy.
Consideration
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Before you purchase a life insurance policy on your child, consider whether you can afford to pay for the premiums over the long term. Once you've decided you can afford to buy a policy, then decide on the type of policy. While a term policy may be the cheapest, the odds of you needing a death benefit for your child are likely low. A permanent policy may be a wiser choice and will allow you to give a valuable gift to your child when he is older.
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