Most people have never thought about adding children’s life insurance to the other forms of insurance that protect a family’s security. In fact, these policies are uncommon; only 15% of those under the age of 18 have them. There are many reasons, however, that children’s life insurance shouldn’t be so rare. Take a brief look at three pros for considering life insurance for your child.
- Guaranteed insurability – Children’s life insurance policies guarantee insurability in case a child develops a chronic disease, such as diabetes, that could require higher premiums. But, unfortunately, there are even more serious conditions which could leave a child uninsurable for life. For those parents with a family history of diabetes or heart disease, purchasing a life insurance plan for your child at an early age could be a wise decision. Getting your child a good policy early in life is like extending a safety net into the future. Often, grandparents give the gift of life insurance to their grandchildren as the gift of welfare provides more value than any material item.
- Inexpensive and flexible – Life insurance policies for children are often inexpensive and flexible. Some options include term life insurance, convertible term policies and universal or whole life plans with annuity benefits. Term life insurance, which typically ends at age 65, carries a very low cost, and is the best bet for people with tight budgets. Also, term policies can be replaced when other forms of life insurance become affordable. A smart choice is to find a convertible term policy. These plans eventually can be changed into longer–lasting universal or whole life plans. Some policies even include guaranteed coverage increases at different ages, all without evidence of insurability. Universal life insurance is more expensive than term, but policies can last to age 100. Finally, whole life policies can also be helpful. They are the most expensive but accumulate cash values and earn interest.
Life plans include a wide array of options for a variety of financial purposes, including borrowing against the value of the policy. In addition, you could also add an annuity benefit providing even higher cash values for emergencies, extra college expenses and even the eventual purchase of a home. While they’re the most expensive form of life insurance, buying whole life locks in a premium forever, and a policy on a young child is far less than you might think.
- Insurance as an investment – Whole life policies for children are a forced-savings investment vehicle that can be used for a variety of purposes, including college tuition, by both the family and the child. Both parents and grandparents use this type of life insurance policy as a gift to benefit the child as he or she matures. As a bonus, these life policies are a way of investing money on a tax deferred basis. Some financial advisors suggest that parents forego life insurance for their children. Instead, they recommend that money regularly be put into either a mutual fund portfolio or one of the new 529 college funds. The problem with this logic is that these good intentions often get sidetracked by more immediate family needs. Buying a whole life policy guarantees that your contribution to your investment plan is structured and consistent. It means that your investment will be there when your child needs it.
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