Do My Children Need Life Insurance?
We understand the importance of adults having life insurance at each stage of their lives, but there is much debate about whether children should have life insurance. There are some advantages to getting life insurance coverage for children, but each family must assess their own situations individually to see if it makes sense for their households. We will look at five reasons to consider life insurance coverage for our children.
Rates are lower
Since life insurance premiums are calculated based on the age of the insured, children’s policies are much more likely to be less expensive. Permanent policies are designed to “lock in” the premium payment, so that low rate will remain as long as the policy does not lapse.
Coverage can last a lifetime
As long as the monthly premiums are paid on a permanent policy, our children can keep their coverage for the duration of their lives. There will never be a need to re-evaluate their health condition unless they decide to increase the death benefit.
Children may be easier to insure
Most children do not have the multitude of medical problems we tend to acquire in adulthood. They are less likely to have medical conditions that can lead to rated policies, which have higher premium payments.
Children are also not likely to need the full paramedic examination that is required of adult applicants. Most insurance companies will issue policies based solely on the application and the medical record. Fewer medical problems can mean a lower premium payment.
Accumulate cash value
Premiums paid to permanent life insurance policies go into two directions. One portion pays the cost of the insurance, and the remainder goes into a cash bucket. Depending on the type of policy, this cash value will grow with a fixed or variable interest rate. Over time, it is possible to accumulate a sizable amount of cash in the policy.
This cash can be withdrawn or borrowed against for any reason. Depending on when the policy is purchased and the amount of money paid in over time, a child may be able to use the money for any reason, including to help purchase a car or a home, or to help pay off college debt. Left long enough, it could help supplement their retirement income needs.
Cover final expenses
While it is a parent’s nightmare to outlive a child, it is also important to remember that final expenses can be expensive. If a household does not have an emergency fund to cover the expense, it is possible that the financial outlay needed to cover an unexpected death could cause a domino effect and negatively impact the household’s finances overall. If there are other children in the home, they, too, could be harmed by the lack of financial preparation.
A life insurance policy can be a beneficial gift for a child. There are many benefits to purchasing a policy early in a child’s life. With proper planning, it can be a tool that works for them throughout their lives.
Ozeme J. Bonnette is a financial coach, speaker, and author of Get What Belongs to You: A Christian Guide to Managing Your Finances. After working for a top financial services company, she shifted her focus to speaking to groups hoping to increase financial literacy. She earned 3 Bachelor’s degrees at Fresno State, and her MBA at UCLA’s Anderson School. Her blog is http://www.povertynorriches.com. Reach her at firstname.lastname@example.org.