Updated: January 9, 2020
You probably heard from an insurance agent that you need to buy life insurance for your child. Getting life insurance for your kids has advantages and disadvantages.
It’s a topic that’s often discussed among financial advisors, and I’d like to share some of my thoughts about it. Read on and learn about the pros and cons of getting life insurance for children
Buying life insurance for children has become a debated issue in financial circles. Those who are for it assure parents and grandparents that thinking of coverage is a wise thing to do.
They say that it improves children’s insurability and the chance to buy more such insurances in future. And, of course, it’s a nice move to save the family’s budget if any unfortunate incident happens to the child.
However, financial advisors who are against it insist that the value of such documents are often overstated.
They think that it’s wiser to instead use the money to prepare for emergencies and invest for financial goals first, before purchasing life insurance policies for their child.
How the Life Insurance for Children Works
There are two basic forms of coverage for kids.
Whole life or VUL insurance for children.
Most parents and grandparents select this type of permanent coverage for their kid. It means that a child will have insurance for the whole life, and the sum of the coverage will increase as time passes by. When a kid reaches for adulthood, a parent or grandparent is allowed to give the ownership of the coverage.
Term life insurance for children.
This coverage works for the chosen period and may last for ten or more years – it’s up to you. Parents may pay some extra sum to prolong the existing insurance for their kid. This coverage costs less than the one that covers the entire life and can be also bought at the largest insurance corporations.
To Buy or Not to Buy
Below are some statements related to this issue, and the corresponding arguments of those who are FOR and AGAINST buying life insurance for children.
The insurance may cover expenses connected with the funeral.
FOR: In case a child dies, the coverage includes medical bills, funeral money waste, and supportive sums that help the family to live in case parents had to leave their jobs for some time;
AGAINST: The percentage of children’s deaths is too small, and it’s better to think of building an emergency fund instead, than life insurance. And getting a memorial plan is a more affordable tool to cover funeral expenses.
The early insurance multiples the chance to get more policies in future.
FOR: A kid might get an illness or medical problem later on that will restrict them from getting life insurance, especially when they become an adult. This is why many parents try to buy coverage now.
Moreover, they’ll need to buy an insurance policy in future for their own family’s financial security, so why not buy when it’s most affordable.
AGAINST: There’s a low percentage of chances that an adult person is restricted to have coverage due to medical or health reasons. The family’s medical history should provide insights if it’s truly needed.
There’s an investment or money-saving option that may be used later.
FOR: There can be cash value in the insurance that grows in value through the years. This can be taken from the policy in the future to fund their college education, or other pertinent needs.
AGAINST: There are better ways to grow your money. You can invest money directly and avoid spending on insurance premiums altogether for your child.
The money going to paying the insurance can instead be used as funds for the child’s present needs and a portion towards investments that will be spent on college expenses, which can just be directly invested in the stock market or mutual funds.
What You Should Consider Before Buying the Insurance?
First of all, you have to explore your budget and find out if there’s enough money to cover more important risks.
Talking to a financial advisor who’s not connected with an insurance company will be beneficial to get an objective advice.
Buying life insurance is a means to reduce financial risks and losses. It’s necessary for the parents to have coverage. However, getting a policy for your child is optional and solely depends on the family’s circumstances.
What do you think? Let me hear your thoughts in the comments section.
This is a guest post article by Floyd Burton. He’s a full-time blogger, who is always passionate to explore different topics, which he can write about and share his thoughts.