Have you ever thought about getting life insurance for your child?
I was sitting with a mom once who told me, “I don’t want to make money off of my child dying.” I was a bit taken back by her statement, because it meant no one she had ever talked to about life insurance took the time to have this tough conversation with her. While nobody wants to think about the death of their child, it is an important reality we have to plan for, just in case. Plus, the dying part is not the only benefit of getting life insurance on your child now. Let’s talk about why children should get life insurance.
4 Reasons Why Children Should Get Life Insurance
1. Funeral Cost
I remember when I was younger, I would see cans at convenience stores asking for donations due to a tragic death of a child. Now a days, it’s Go Fund Me. I couldn’t imagine what it would be like to experience the death of a child, not to mention having the added stress of trying to come up with the money to give a proper burial too. Having a policy in place can help to give parents the money they need to pay for funeral expenses and the time they need to grieve.
2. Insurability
Have you heard the saying, “Money doesn’t buy life insurance, your health does?” Imagine having the money to afford any insurance policy you want, but your health is not in the best shape. Maybe you have had heart troubles, diabetes, or cancer. No matter how much you are willing to pay for a policy, the insurance company will not approve you because you bring too much of a risk given your current health situation.
Now, imagine that your parents took out a policy on you when you were a child, before all of your health diagnoses. No matter what your health becomes, you will have that policy when you need it.
3. Low Premium Cost
Many factors are taken into account when an insurance company determines their premium rates for a policy. One is age, another health, smoking status, and more. Children are young, typically have good health, and do not smoke. Therefore, rates for a children’s policy are much lower than that of an adult. The best part is that this low cost can be locked in for the life of the policy.
4. Cash Account
How would you like to have money available to use toward your children’s first car, college, wedding, down payment on a house, or even retirement? An insurance policy with a cash account gives you the option to use the accumulated money with flexibility.
We talked about how children’s insurance policies are lower in cost above. Some policies use a portion of the monthly premium to go into a cash account in the policy. Over time this builds and gains interest tax deferred. You then can access this money as a need arises.
Types of Child Insurance Policies
Child Term Rider
The most cost effective way to get life insurance on your child is through a rider on your own policy. It will cover all of your children, whether you have one or ten, for one price. If you have another child, he or she is added to the rider without any increase in cost.
Once your children become adults themselves, they can convert this type of coverage to their own policy, and increase the amount of insurance without needing to prove insurability.
Individual Policy
Another option is to have individual policies for each child. Why? Because individual policies offer more flexibility.
For example, we have three kids. Each has their own policy with a cash account like we talked about in number 4 above. We have chosen to pay more per month than the cost of the insurance itself. This is called overfunding, and the benefit is that all of the additional money paid in goes directly to the cash account which then grows tax deferred like we talked about above.
It is always exciting to see how well the cash account grows, and the best part is I never have to worry about it losing money.
If you are already saving for your child’s future, or you would like to start, this is a great option to look into. Many times, I have had grandparents gift these types of policies to their grandchildren.
I hope this article was helpful when it comes to answering the question of why children should get life insurance. If you have additional questions or would like to learn more about how these policies can help you, reach out to us to schedule a time to talk.
Mark Womack