Life Insurance For Children: Good or Bad?

If you are a parent supporting a young family it’s pretty much a no brainer you will want to spring for a life insurance policy for yourself and your spouse. What’s not so certain is if a life insurance policy is appropriate for your children. Many parents are torn between deciding if it’s even the right thing to do for their child. Some policy holders add a small rider for their children, usually just enough to cover a burial expense. Is that enough?

As with any insurance, it is very important to keep paperwork and/or company name available to your beneficiaries when the time arises. It is as simple as registering on a life insurance database to guarantee this information will never get lost and become a lost life insurance policy.

The primary point of all life insurance is the death benefit. It’s designed to cover memorial expenses and any lost income if the provider dies at any time during the term of the policy. This is great for the young parent trying to protect his or her family as much as possible from unfortunate loss. But if your child has no income what’s the point? If the primary reason is to cover memorial expenses it’s possible you can add your child to your own life insurance policy at a small additional premium expense.

A whole life or universal life insurance policy may have a cash value, one which can serve as a loan if necessary in time of need. Over time the value of the policy decreases in relation to the age of the child, i.e. the older the child the less the policy value. But if the primary purpose for the policy is to serve as an investment account, savings account or educational fund, parents might be better off investing in a savings account or mutual fund instead.

Another reason parents consider life insurance for their children is in the possibility of an uninsurable illness later in the child’s life. Buying a permanent policy for your child ensures they will have coverage later in life when they need it the most – even if they suffer from a disability or debilitating illness or disease. A family history of health problems also might affect their life insurance eligibility later in life or at the very least incur additional premium costs. Purchasing the insurance while they are young ensures they’ll have some insurance when the time comes. Unfortunately, no one can tell what the health of their children might be like in the future. Most adults, even with chronic illness and a family history of problems, are still able to acquire coverage. And, if you have a family history it will likely raise the cost of premiums for you and even for your child. Even if coverage is available for your children it’s difficult to address how much coverage they’ll need as an adult, making a policy much more difficult to decide upon.

The decision to purchase life insurance for your children is a controversial one and ultimately up to you. Everyone has different circumstances influencing the choices they have to make. If you are uncertain about what course of action to take, seek professional assistance and discuss your options with your financial advisor.

Until next time,Michael Hartmann
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