Buying Life Insurance for Babies and Children
Many parents struggle with the reasoning behind life insurance for a newborn: Do we need it? Is it worth it? While everyone has their own opinion on the matter, most insurance agents can agree on one thing: Be sure the other critical financial obligations are secure such as a savings fund, life insurance for the parents, and the child’s college tuition. Once these obligations are met, it’s up to the parents to determine if they want additional financial security for their children.
What type of life insurance is for children?
Life insurance for children will most likely fall under a juvenile whole life insurance policy. These policies typically are smaller benefits ranging from $1,000 to $25,000 and can be bought from the first day the child is born and last the child’s whole life.
With some companies, you may be able to add your child as a “rider” to you or your spouse’s policy. This means they are added to your policy at an additional cost and get their own benefit, which is normally a smaller amount. When adding a rider to your policy, be sure to check the age requirement as it is different for every company.
Advantages of buying life insurance for children
Though every company has different benefits and requirements, buying life insurance for a child can be beneficial because:
It can help provide funeral expenses and other costs
In an absolute worst case scenario, a life insurance payout can help cover a child’s funeral, pay for family grief counseling, and compensate for the parents’ time away from work.
Most children are guaranteed insurable
Adults buying life insurance have to consider their health, health history, family health history, and lifestyle habits. However, most newborns and children are the youngest and healthiest they’ll ever be in their life, therefore they are usually easier to insure.
Juvenile policies are cheap and stay that way
In addition to the ease of qualifying for insurance, children typically have the lowest premiums rates on the market. Most companies also lock in a child’s premium rate, meaning the child will be protected from rate increases that correspond with age and health over time. This results in a cheaper policy for the same benefit.
Most juvenile policies have a cash value benefit
A life insurance policy with a cash value benefit is appealing because later on in life, your child can borrow money from their policy for college, a wedding, or other major life purchases. Be sure to inform them of the heavy consideration that comes with a loan policy.
Disadvantages of buying life insurance for a child
Many financial professionals are skeptical about juvenile life insurance policies for a few reasons.
Child death is unlikely
According to the CDC, approximately 12,000 children and young adults, ages one to 19 years, die from unintentional injuries each year. While most skeptics would use this to prove child death is unlikely, this number only includes unintentional injuries, not cancer and other critical illnesses.
A healthy adult is most likely insurable
As we see above, a huge buy-in to a juvenile life policy is locking in the rate while they’re young. Those against life insurance for children argue most adults in their 20s to 30s are insurable and still get relatively inexpensive premiums.
There are other ways to save for college
Cash value is appealing to parents because their child can take out a policy loan later on in life if needed. On the other hand, financial advisors against child life insurance argue there are better ways to save for those expenses such as savings and investments accounts.
While some parents see the need to secure financial coverage for their children, others do not. As with any insurance, there is no “one size fits all.” Any life insurance purchase comes with heavy consideration and those looking to buy should be well informed about their purchase.
Life insurance can be an essential part of your financial plan.
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