Should you buy life insurance on your children? It’s a simple question, but you’ll have a hard time finding a simple answer.
Some advocates think life insurance can preserve “future insurability” if a child faces a tough health condition later in childhood. Others cite the savings component of a whole policy as an avenue to more fiscal stability.
But many opponents think life insurance companies and their agents have created a false need for children’s life insurance simply to sell more policies.
We won’t try to persuade you one way or the other in this post. Instead, let’s take a closer look at both sides of the debate so you can decide what’s best for your family.
Life Insurance for Children: Is it worth it?
Most people buy life insurance as a hedge against the unexpected.
Unless you have hundreds of thousands of dollars saved, your family could struggle financially if you died.
People who earn most of their family’s income gravitate toward life insurance coverage because it could replace their income if they died unexpectedly.
Along with replacing your salary for years into the future, your death benefit could also pay off the mortgage, the auto loans, and any unsecured debt you left behind.
Children, of course, don’t typically have these kinds of financial commitments at such a young age.
So in this traditional sense, it’s hard to make a strong case for buying life insurance on your children.
Why People Buy Life Insurance on Children
So let’s dig beneath the surface to find out why people advocate for children’s life insurance. Here are some common reasons:
- A savings vehicle: Whole life insurance policies, no matter how small, include added cash values which grow over time. A child could, when he or she reaches young adulthood, cash in the policy and use the money for college or for a mortgage down payment.
- Future insurability: It can be harder to buy quality, affordable life insurance when you have a life-changing diagnosis, whether it’s a genetic heart condition, cancer, or even diabetes. By getting a policy now, advocates say, your child will have a foot in the door for future coverage, even with an unfortunate diagnosis.
- The actual payout: Some parents want a way to pay for funeral expenses or to compensate themselves for wages they couldn’t earn while recovering from the trauma of losing a child. A life insurance policy’s death benefit can provide these funds.
The Case Against Children’s Life Insurance
For every point parents and insurance companies make to support life insurance policies for children, other parents and financial planners can offer a counterpoint:
- Better ways to save money: Yes, whole life insurance policies accrue cash value that the child can use later in life, but so do savings accounts, tax-preferred 529 college savings plans, and government bonds. With so many options, detractors say, you don’t need an insurance policy to plan for your child’s future.
- Insurability is a gamble: Opponents of children’s life insurance consider the idea of preserving future insurability an unnecessary gamble. The likelihood of a life-changing diagnosis is slim, they say, and the insurance marketplace is diverse enough to offer solutions even to people with health conditions.
- Other ways to pay: Yes, an insurance policy on a child could pay for the child’s funeral expenses, but opponents say a funeral isn’t that expensive and that parents could simply save the $10,000 or $15,000 they’d need to pay for such a tragic event. As for replacing lost wages, short-term disability benefits could cover them more efficiently.
Just to be clear: The points above do not necessarily represent our point of view. They just represent common arguments against getting life insurance for children.
A Little More About Future Insurability
For most parents we’ve worked with, the concept of “future insurability” for their child compels them to seek child life coverage.
We grazed the issue a couple times above, but it’s complicated enough to take a closer look.
Parents whose children are genetically disposed to develop a chronic illness are most likely to worry about future insurability, and for good reason: they’re most likely to benefit from taking such a precaution.
Most children, however, will not develop a condition during childhood that would prevent them from getting life insurance later in life.
We always defer to a parent’s knowledge in these cases.
But we hear some other ideas from time to time that don’t make as much sense, and this is a good place to discuss a couple of them:
- Locking in low premiums: Healthy, young adults already have access to the lowest premiums in the marketplace, so there’s no need to lock-in a low rate while your children are minors. Also, the policy you’d buy now probably wouldn’t be enough to cover him or her as an adult with a growing family anyway.
- Whole life as an investment: While it’s true whole life policies on children accrue cash value, they aren’t automatically a smart investment. You could be investing the same money elsewhere and having better access and more control over its performance.
Children’s Life Insurance Is Ultimately A Parent’s Decision
Wherever you fall in the debate about whether parents should buy life insurance for their children, we should all be able to agree on one point: a parent or guardian has the right to decide.
We don’t typically encourage parents to buy life insurance for their children because it doesn’t seem like a pressing need in most cases.
It’s much more important for a family’s primary breadwinner to have the right kind of life insurance coverage. In that case, there’s no debate: a relatively small amount of money each month in premiums could save your family a tremendous amount of financial turmoil if the worst happened.
But we’re also glad to help parents find life insurance solutions for their children if they’d like coverage.
Parents are the experts on their children, after all.
They have the right to decide for themselves how to plan for their children’s futures.
How People Buy Life Insurance on Their Children
Parents seeking life insurance coverage for their children usually have two options:
- Whole life policies: Most parents or grandparents seeking coverage for a child opt for a whole life policy. Whole life policies do not expire and premiums also fund the added cash value the child could use later in life. The adult who bought the policy should transfer ownership to the child once the child reaches adulthood.
- Term life riders: Term life insurance expires after a specified amount of time, usually between 10 and 30 years. While insurers do not typically sell term life policies on children, many do offer riders parents can add to their own term life policies. These riders extend a certain amount of coverage for their children and tend to be quite affordable.
Both approaches offer advantages and disadvantages we’d be glad to discuss on a case-by-case basis if you’re interested in insuring your children.
A term-life rider may be more flexible and cost effective, for example, especially if you have more than one child to insure.
Independent Agencies Offer More Options
Parents seeking the most affordable and flexible life insurance options for their children should check with an independent insurance agent in their area or with an online independent agency like ours.
Independent agents can show you a wider variety of policy options since they represent dozens of insurance companies.
An agent working for a specific insurance company typically won’t tell you about other companies’ policies.
Shoppers with special circumstances such as health conditions or cost concerns will also benefit from an independent agent’s wide range of options.
Children’s life insurance is a specialty product; the more options you have, the more likely you’ll find the best solution.
We’re here to help if you need us.