You’ve just had your first child- congratulations! Of course you want the best that money can buy when it comes to feeding, clothing, and keeping your baby healthy. You’ve probably purchased health insurance for your child. But what about life insurance for your child? Is that a necessary expense?
According to Karin Price Mueller, author of Online Money Management, there are some reasons why you should purchase a policy for your child, but in other cases it is not necessary. She states that when she was born, her parents purchased a life insurance policy for her in the amount of $10,000. Until she had a child of her own, she found very few reasons why it was necessary for her parents to buy coverage for her. She didn’t have an income, she had no childhood diseases or a family history of chronic illness, and she considered a separate bank account the best way to save for college.
Once she became pregnant, however, her perspective on life insurance changed completely. She remarks, “When I was pregnant with my daughter, I developed gestational diabetes. The disease stuck around after I gave birth, and it makes new life insurance policies much more expensive for me than before I was diagnosed with the disease. Instead of getting a new life insurance policy, I’m planning to increase the death benefit of the policy my parents bought for me. The premiums will be much cheaper than the high-risk premiums I’d have to pay on a new policy.” Obviously, simple “insurability” is a consideration. Many policies will give the opportunity to increase the death benefit several times during your life without having to prove insurability.
This article won’t tell you if life insurance is the best purchase for your child or not, but it will provide you with the pros and cons to help you make an informed decision.
Let’s ask a few questions to see if life insurance is the right purchase for your child.
Question: My wife wants to buy our son a $50,000 life insurance policy. He’s just a child and doesn’t have an income that we need to replace. So why would we need this much?
Answer: The first issue to consider are your child’s assets. Your child does not have a job, and therefore does not have a steady income. Unless they have inherited a large sum of money from a family member, there is no large sum of money that needs to be replaced or protected through a life insurance policy.
Question: I’m afraid that our income won’t be enough to cover an unexpected funeral and burial service. Is this a good reason to buy a policy?
Answer: The death of a child is always devastating. Especially if it is unexpected, you probably do not have several thousand dollars set aside to provide for a funeral and burial service. Having a small life insurance policy can help you to cover these costs. Depending upon the size of the policy, it may also help you to pay any outstanding medical bills.
Question: If I want to make sure I have enough money to send my child to college, is purchasing a life insurance policy with a cash value a good way to save?
Answer: The third item to consider is the cash value. If you purchase a whole life or universal life insurance policy, you will be able to build cash value. This is done through the premiums that you pay monthly. Some people use this as a way to save for their child’s college tuition or unexpected life events, like hospital visits. The disadvantage to withdrawing money from the policy is that it reduces the cash value left in the coverage, thus reducing the additional interest that can be earned. Additionally, it will diminish the amount remaining for the death benefit.
Question: What are the cost advantages to having a life insurance policy when you are a child, as compared to an adult?
Answer: You must consider the costs for purchasing life insurance. It is interesting to note that it is significantly cheaper to begin a life insurance policy when your child is younger, rather then purchasing it on their own once they reach adulthood. When they are a child, they probably have not had past health problems which would increase their rates. However, if you have a family history of chronic illnesses or poor health, the rates for your child, no matter their age, will probably be higher than the average person.
If you decide to cover your child under a life insurance place, you have two options. First, you could add them to the life insurance policy you have for yourself. If your coverage doesn’t allow for your dependents to be included, then you could buy a separate policy for your child. Something as little as $10,000 in death benefits would mean low premium costs for you and financial assistance should the worst occur.
Speak with an independent insurance agent specializing in life insurance today. They will have the most knowledge on the policies that are right for you and your family members.
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