What is child life insurance?
When thinking about your child’s primary needs, life insurance is probably pretty far down the list. Little wonder – life insurance provides a safety net for those who rely on others, such as a parent (i.e. you). How does purchasing life insurance for your children benefit them?
What Is Child Life Insurance?
Life insurance for children, like adults, is a contract with an insurance company that promises to pay a death benefit if a child dies. Life insurance policies for children are generally permanent policies, meaning they provide lifelong coverage as long as the premiums are paid (typically monthly or annually) by the policyholder, which is the parent or guardian. These premiums are locked in and don’t increase over time, unless any guaranteed riders are exercised. Plus, part of the premium builds cash value, which can potentially be accessed while the child is alive.
Child life insurance is worth considering for several reasons. In cases of an accidental death, the policy can assist with medical and burial expenses. It can help in certain cases if your child’s health changes, and they are suddenly unable to obtain coverage in the future. Buying a life insurance policy for a young child can also be beneficial because the coverage usually grows at certain ages when factors, such as student debt, accumulate.
Should I Buy Life Insurance For My Child?
As with many decisions in life, consider the pros and cons to purchasing life insurance for your child:
Low rate lock-in
Pro: Pro: You won’t get any cheaper premium rates than when your child is a newborn. Rates will rise every year with age. Buying life insurance when your child is young and healthy is, by far, the best deal.
Con: If coverage is needed over your child’s entire life, this is likely a long time to be paying premiums. Still, the coverage overall is very affordable.
Guaranteed insurability
Most child life insurance policies offer guaranteed purchase options, allowing your child to purchase additional coverage without completing a medical exam.
Pro: This is especially useful if your child develops a pre-existing condition (such as diabetes or cancer) or pursues a risky career. All can impact the cost of insurance and insurability.
Con: More commonly than not, parents don’t feel a need to protect their child’s insurability. However, having a life insurance policy for your child is better than having no coverage if their health changes in their childhood, or if your child dies accidentally.
Cash Value Policies
Pro: You can take money out of the policy’s cash value anytime during the child’s life, so life insurance can help pay for school costs, or a down payment on a house. No tax liability is incurred until the money is withdrawn.
Con: Cash value takes time to grow, and relies heavily on premiums being paid. Other means exist for you to save for your child, whether for college, retirement or other needs. For example, a Roth IRA might be a better long-term option for your child.
Insurance policies aren’t “one-size-fits-all.” There are many, many different policies to discover for you and your family when deciding what is best for your children. If you have questions about life insurance for your children or want to explore alternatives, don’t hesitate to reach out to an agent at American Advantage-IFS at 262-696-5800!
