Despite what you might hear in those Gerber baby commercials, life insurance for children is seldom recommended. The primary purpose of life insurance is financial protection, and unless they are claiming you as a dependent, there isn’t much reason to purchase life insurance for them.
Though it is true that life insurance rates climb as a person grows older, your child has a slim chance of being denied a policy when the times comes.
Although child life insurance isn’t recommended, tax-advantage savings plans like 529 Plans should be considered.
So why do people buy life insurance for their child?
Child life insurance is typically pitched the following ways:
- It can be used as an investment tool for future expenses, such as college
- It can help cover the cost of a funeral if the child dies
- It can lock in a decent rate for your child
- It can help your child become more insurable
Generally, these purposes are not useful enough to warrant the purchase of child life insurance unless your child has a medical condition.
How is Life Insurance Purchased?
Life insurance for children is sold by many primary insurance providers, but there are companies, such as Gerber, that specialize in child life insurance.
Children can be insured in two different ways:
- Parents can buy a child’s whole life insurance, which includes a death benefit pay out, should the child die
- Parents can add a child to their current life insurance policy
Is Paying for Child Life Insurance Worthwhile?
Three types of permanent life insurance policies have a cash value; whole, variable, and universal. With these policies, you get life insurance, and a death benefit. However, a portion of your premium goes into a cash account that will grow as time passes. Because of both protection and savings with interest, parents find child life insurance attractive.
Not all policies have such appealing benefits though. Sometimes the interest earned is directly proportional to the company’s investments, or their profits. Some companies have a predetermined rate, while others do not.
Whole life insurance policies are commonly misunderstood. Many folks don’t realize that the “total” cash value of their policy is often an estimate of what their funds will look like, while the guaranteed value is often significantly less than the total. These numbers often don’t account for inflation as well. $10,000 today will probably not be the same as $10,000 in 20 years. The difference is probably going right into the company’s pocket.
Should you really feel like you need to purchase child life insurance, it is recommended that you add a child rider to your current term life insurance policy. This will include a death benefits, and is relatively cheap.
Protecting Insurability
Unless your child has a medical condition that may prevent them from getting covered as an adult, you probably don’t need child life insurance. Some parents are concerned that their child will develop a medical condition before they reach adulthood, but unless there is a genetic history that would suggest such, there probably isn’t much to worry about. Most adults don’t have any problem purchasing their own plans in their 20s or 30s.
Other Alternatives
Life insurance for children is often marketed as an investment for your child’s college education. While this is true to some degree, it’s usually not as great of an investment as it’s made out to be.
There are better investment options out there for the purpose of saving for education, such as a 529 plan. These plans are designed specifically for college education and can provide some great tax benefits.
If your child is old enough to be working, perhaps a part-time or summer job, you could help them set up an IRA account to help fund retirement.
Even a basic custodial account can prove to be very effective as a general savings for your child. They account can be handed over to them when they turn 18 or 21.
Source: https://www.policygenius.com/life-insurance/life-insurance-for-children/
