When asked the question of whether you should buy life insurance for your kids, a life insurance agent might start by discussing the primary reason for buying life insurance. In general, the purpose of buying life insurance is to replace the lost income in the event of the insured’s death.
Children nearly always have no income, so the ordinary purpose of life insurance does not fit. However, there may be other reasons to buy a life insurance policy for your children.
Reasons To Buy a Life Insurance Policy for Your Children
Life insurance policies are cheapest for children. The premiums are so low you will barely notice it in your budget. Moreover, you can lock in the rate for the entire term. That might be a good enough reason to buy a life insurance policy for your children.
When your child gets older, they also do not have to worry about being turned down for life insurance if they engage in a dangerous hobby such as skydiving.
Another reason to buy life insurance for children is the general health of the young. Most whole life insurance policies require a medical exam, and children usually come through with excellent health results. If they should acquire a medical problem during their childhood, they will not risk being able to be insured when they are older.
Furthermore, some whole life insurance policies have a rider called a guaranteed insurability rider which is also called a guaranteed purchase option rider, which means the policyholder can increase the coverage on the life insurance policy without being subject to another medical exam.
While parents are the closest people to their children, they are not the only ones who might be interested in buying life insurance for a child. Grandparents sometimes gift a child’s parents with a life insurance policy for their children. In this case, the grandparents are the policyholders, the child is the insured, and the parents (or whomever the grandparents choose) are the beneficiaries.
To aid you in your decision we have put together a bullet list of the pros and cons of buying life insurance for a child.
Pros of Buying Life Insurance for a Child
While the primary purpose of life insurance is to replace income, there are plenty of other positives in buying life insurance for children as the following list shows.
- Guaranteed insurability
- Low premiums
- Premiums are locked in
- Cash value grows
- Can borrow against the cash value
- More time to accumulate cash value
- Provides funds to pay for the final expenses of a child’s death
Cons of Buying Life Insurance for a Child
While the list of pros of buying life insurance for a child looks appealing, there are at least a few cons that should make you think twice about buying a child a whole life insurance policy. We have listed them for you below.
- Offers a low rate of return
- Paying the premiums is a long-term commitment
- There may be a cap on the face amount of the policy
- Money for premiums might be better spent on parents’ life insurance, long-term care, or disability
Final Thoughts
One of the big reasons not to buy a life insurance policy for a child is the money that could perhaps be spent elsewhere. Parents who do not have life insurance or do not have enough life insurance might consider it better to invest in a policy of their own, which would come in handy for the family if they die and the loss of their income would devastate the family financially.
Excess funds in the budget could also be spent on a disability or long-term insurance policy to help care for the person if they become disabled or are unable to live on their own in their golden years.
There is a lot of food for thought here, and it is wise to carefully consider all the facts before making a final decision.
