Life insurance is one of those topics that many people put off until later in life. After all, it’s something most often associated with adulthood, protecting families against the loss of a wage earner. But what about children? It might seem unusual, even unnecessary, to buy life insurance for a child, but in certain situations, it can be a smart and practical decision for parents. In this article, we’ll explore how to buy life insurance for children, why some parents choose to do so, and the pros and cons of this approach.
Why Do People Buy Life Insurance for Children?
While it may seem like an odd concept at first, there are several reasons why parents choose to purchase life insurance policies for their children. Understanding these reasons can help you decide whether this type of policy is right for your family.
1. Financial Protection in the Event of a Tragedy
The primary reason most parents purchase life insurance for children is to provide financial protection in the tragic event of a child’s death. While no one wants to imagine the loss of a child, the reality is that it can happen. The emotional toll on parents in this situation is unimaginable, but the financial burden of funeral and burial expenses can also add to the stress.
Even though these costs can be difficult to estimate, the average cost of a funeral for a child can range from $5,000 to $10,000 or more. A life insurance policy can help cover these expenses, easing the financial strain during an already devastating time.
2. Locking in Low Premiums for Future Coverage
Another reason parents opt for life insurance for their children is the potential for future financial security. Purchasing life insurance at a young age means locking in lower premiums. Since premiums are typically based on age and health, insuring a child while they’re young and healthy can result in significant savings over their lifetime.
Some parents view it as an investment for the future. When the child grows up, the policy may be convertible to a permanent life insurance policy, such as whole life insurance, that they can keep throughout their adulthood. It ensures that the child has life insurance coverage, regardless of any health issues that might arise later in life. Some children may even be able to continue the policy when they reach adulthood, giving them financial security in the future.
3. Cash Value Accumulation
Certain types of life insurance, like whole life or universal life insurance, can build cash value over time. This means that in addition to providing death benefits, the policy accumulates a savings component that can be borrowed against or used for other purposes down the line.
For example, some parents buy life insurance for their children as a way to start building savings for future needs like college tuition or a down payment on a house. Over time, the cash value can grow, and when the child reaches adulthood, they may have access to that money as part of their financial foundation.
4. Peace of Mind
Finally, purchasing life insurance for a child can provide peace of mind for parents. The financial stability provided by a life insurance policy can reduce some of the worry about the unexpected. Though the likelihood of a child’s death is rare, knowing that they have coverage in place can give parents one less thing to worry about. It’s a way of proactively preparing for the worst, even when it seems unlikely to occur.
How to Buy Life Insurance for Children
If you’re considering buying life insurance for your child, there are a few important factors to understand about the process and types of policies available.
1. Types of Life Insurance for Children
When buying life insurance for children, there are two main types of policies to choose from:
- Term Life Insurance: This is the more affordable option. Term life insurance provides coverage for a specific period, such as 10, 20, or 30 years. In the case of children, term life insurance typically lasts until the child reaches adulthood. If the child passes away during this term, the policy pays out a death benefit, which can help with funeral and other related costs. However, once the term expires, the policy ends, and no cash value is accumulated.
- Whole Life Insurance: Whole life insurance, on the other hand, provides coverage for the child’s entire life, as long as premiums are paid. Whole life insurance is a more expensive option compared to term insurance, but it builds cash value over time. The policyholder (usually the parent) can borrow against the cash value or use it as a savings account for the child’s future. Some parents buy whole life policies because of the long-term financial benefits they can offer.
- Universal Life Insurance: This type of policy combines aspects of both term and whole life insurance, offering flexible premiums and a cash value component. Universal life insurance policies allow for adjustments to the death benefit and premiums over time, making it a versatile option for families that want a policy that can adapt as their child grows.
2. How Much Coverage Should You Get?
The amount of coverage you need depends on your reasons for purchasing the policy and your financial situation. For parents who are primarily concerned with covering funeral and burial costs, a policy with a $5,000 to $25,000 death benefit may be sufficient. If you are also interested in building cash value or providing a financial foundation for the child later in life, you might consider a higher coverage amount.
3. Understand the Costs
The cost of life insurance for children varies depending on the type of policy and the amount of coverage. Term life insurance policies are generally very affordable, with premiums for a child often as low as $10 to $20 per month for a $25,000 policy. Whole life insurance policies, on the other hand, can be more expensive due to the cash value component, with premiums starting at $50 or more per month.
It’s important to shop around and compare quotes from multiple insurance companies to find the best policy for your needs and budget.
4. Consider the Pros and Cons
Before purchasing life insurance for your child, consider the pros and cons.
Pros:
- Provides financial protection in the event of a tragedy
- Locks in low premiums for future coverage
- Builds cash value for future needs
- Provides peace of mind to parents
Cons:
- Adds an extra financial burden to parents
- Some may argue that life insurance for children is unnecessary, given the low risk of death in childhood
- Cash value growth may be slow in the early years
Should You Buy Life Insurance for Your Child?
Buying life insurance for a child is not a decision that should be taken lightly. While there are legitimate reasons for doing so, including financial protection, future savings, and peace of mind, it may not be the right choice for every family. If your primary concern is covering funeral costs, a small term life insurance policy might be appropriate. However, if you’re looking to build long-term savings, you might want to explore more permanent life insurance options, keeping in mind the higher premiums involved.
Ultimately, it’s essential to weigh the costs, benefits, and your family’s unique financial situation before making a decision. If you’re unsure, speaking with a financial advisor or insurance agent can help clarify which option is best for you and your child’s future.
