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Choosing Whether to Purchase Life Insurance for Children

 

The most common types of life insurance are for working adults, spouses or parents, so most don’t even consider purchasing a policy for their children. According to the American Council of Life Insurers, only 15 percent of children under the age of 18 have some type of life insurance policy -- and usually the death benefit is only a small fraction of that of a working adult.

 

Benefits of Life Insurance for Children

Proponents say it’s good planning to purchase life insurance for someone while they’re still young and healthy. Those who purchase life insurance for children and begin insuring their children while they’re young, healthy, and non-tobacco smokers can greatly benefit their children when they become adults. By doing so they can lock in an extremely low monthly premium that the child can hold onto well into adulthood.

 

In some cases, life insurance could even become unavailable for them later in life, depending on their habits and health status, according to Global Life Insurance, which specializes in life insurance for children. But if the policy is purchased and the contract is finalized, the insurance company can never renege or drop the policy, as long as the premiums are paid on time.

 

However, the death coverage that Global Life provides is never more than $30,000. Other companies provide up to $50,000. This isn’t much coverage for an adult, so some policies allow the benefit to increase later on in life at a low cost.  Companies provide term life insurance for children, although many try to advertise their whole life policies the most. The whole life policies can be popular because they start to build cash value at a relatively young age, allowing the child to borrow from it in the future if the need arises.

 

Drawbacks on life insurance for children

As mentioned above, Global Life guarantees that it will never drop the policy as long as the premiums are paid on time. But some may argue that with the cost of health care rising and many people’s budgets being limited, it would be better to refrain from even a small monthly premium. Instead, many argue any money for the child’s future should be placed in college savings or other accounts, especially considering that an insurance company’s main goal is to make money for itself, and not plan for your child’s future.

 

CNN/Money contributing columnist Walter Updegrave says it’s not wise to spend a lot of money on something that’s probably not going to happen. Auto accidents, health problems and death all occur, making auto, health and life insurance valuable products, but most people live through childhood. It’s realistic to purchase a term life policy because everyone dies at some point, but most children don’t die, and few adults are completely rejected from purchasing life insurance.

However, Updegrave does add that he would suggest a life insurance policy on a child for parents who have some reason to believe the child will have serious health problems in the future. When purchasing a whole life policy on a child, the customer is paying a lot just in the agent’s commission and in marketing.

Since chances are higher that children will attend college down the road than be rejected for life insurance, many financial advisors suggest putting money in a 529 college savings plan instead.

 

Opponents argue that families are better off investing money in a child’s education and that insurance should cover only someone with an income, while proponents argue that it’s good to have some type of financial protection should you have to pay for a child’s burial, and that it’s good to lock in a low premium while the child is still healthy.

However, both would agree that the situation could vary based on individual families. Those who believe, based on family history, that the child could have serious health problems down the road can always talk to a professional and get a quote and compare it to how much it could cost later on.

 

Both parties would also agree that it’s good to be prepared no matter what. If a child dies, the last thing you need to worry about is high bills. So whether you’re putting money in an insurance plan or another type of investment account, it’s good to have life insurance in case the worst happens.

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