Life insurance is something many people don’t like to think about. It reminds us of our mortality and the effects on those left behind. It can be uncomfortable to think about loved ones suffering such a loss, and having to face the future alone.
It’s even more uncomfortable for parents to think about life insurance for their children. However, when thinking about insurance, try not to think about the negative aspects—don’t dwell on the fact insurance is there because of “bad” things that could happen. Instead, think of insurance as a way of protecting all the good in your life. Consider yourself fortunate if you need insurance—that means you have something to protect and/or that you care about something or someone.
There’s perhaps nothing people want to protect more than their children.
Some people think of life insurance solely as protection to replace income if someone dies. Such as when a husband dies, leaving a widow and young children behind. If the husband was the breadwinner, hopefully he had life insurance to help alleviate the widow’s financial stress and future expenses. Therefore, some people say life insurance for children is completely superfluous and that insurance companies are pushing a product parents don’t actually need.
“There is widespread opposition to the idea of insuring the lives of children, arguing that the only legitimate purpose of life insurance is to replace a decedent’s income for dependents,” explains Rob Drury, a practicing financial planner and the executive director of the Association of Christian Financial Advisors, which is a non-profit organization functioning as a ministry. The ACFA works with a network of some of the best qualified practicioners available.
Although that’s one aim of life insurance coverage, there are others. Drury says there are also “many appropriate applications for life insurance beyond a simple death benefit, and some of those do apply to children.”
Drury says some common reasons to buy children’s life insurance is to “provide a safe, tax-efficient, long-term savings vehicle, and also to ensure future insurability.” Sometimes it can prevent a child from ever having to buy life insurance in their life. Additionally, some life insurance policies have accelerated benefit riders and can receive some benefits before dying if needed. Of course, life insurance is also there to cover any final expenses, which is why many buy it.
Geoff Cash, President and Co-Founder of the financial planning firm Dynamic Enterprises, Inc., says those who think life insurance is only for income earners are totally wrong, and poses a simple question in opposition.
“Stats say about five kids under fourteen die in the U.S. every day. If your child passes away, how are you going to pay for the funeral expenses? The average funeral for a child is about $8K where I live. Do you have an extra $8K laying around?” Cash asks. He points out that paying annual premiums for life insurance is much easier to spare than $8K.
Here are some questions every parent should consider first when looking for life insurance for children:
Do you have the right agent?
First and foremost, find a qualified professional. Drury says customer service representatives aren’t the person to buy coverage from and that only a true professional who knows the ins and outs be consulted.
Cash also recommends thoroughly screening any life insurance professional, and urges parents to carefully choose their insurance provider.
“My first tip would be to interview their agent, make sure they’re someone who has been either doing it for awhile or who is committed to the industry and area. Your insurance agent should be a lifelong commitment—not just someone you change like you change your underwear,” says Cash.
Do you have coverage for yourself?
It would be hard to find an insurance or financial professional who doesn’t agree that parents need to have coverage for themselves before buying insurance for their children. Doing so sets a good example, but it’s another way to protect children for future financial necessities.
Jean Gillis, an estate planning attorney and owner of Gillis Law Firm in Jupiter, Florida, says parents should “take care of themselves first” before buying children’s life insurance. She urges parents to make sure their needs and spouse’s needs are covered, and then buy life insurance for their children. If the parents take care of their health, they can hopefully be around as long as possible. It’s also comforting knowing their children would be provided for if the unthinkable happened.
When should you buy children’s life insurance?
“I always recommend parents buy a policy for their child as soon as they can. Most companies will insure children very quickly and some companies even allow instant coverage if the parents have a child rider on their own life insurance policy,” says Cash.
Byron Udell, the founder of Accuquote, one of the largest insurance quote providers in the country, agrees and says policies for children are cheap at any age, but they increase slightly every year, so he suggests buying early as well.
Additionally, as one ages, the chances of illnesses (whether terminal or not), disabilities, and other medical issues that raise life insurance rates naturally increase. Udell points out that this can make it “…very difficult, and sometimes impossible, to obtain coverage if the medical issues significantly impair the person’s mortality, whether it’s a child or adult.”
Cash and Udell say premiums usually increase only a few cents each year. However, Cash explained if someone is unable to obtain coverage later in life due to illnesses or other issues, this could have been avoided entirely if parents had bought life insurance for their child early on, having given the child insurability.
“How would you feel if the child you loved and raised was unable to get coverage later on in life but could have if you hadn’t bought them coverage? Don’t rob them of that,” Cash urges.
How much coverage should you buy and what type?
Cash says the agent or financial professional parents buy from should first conduct a needs analysis, during which parents are asked a series of questions.
“I know this will be very intimidating because there will be a lot of questions, but if your agent just throws out a number without asking questions, beware, because he is not doing you justice and is only concerned about his commission,” Cash warns.
Cash states there’s not one type of policy suitable for everyone, and that insurance is never a “cookie cutter program.” Udell, Drury, and Gillis also agree that every child’s life insurance needs vary, and that the recommend amounts from professionals will vary greatly also.
Udell says parents should work closely with their insurer for determinations. Your broker should explain types of coverage available and assess your personal situation in order to educate you about available coverage options.
In general though, Udell says a $25K or $50K life insurance policy for a child is usually sufficient to cover final expenses. He says for younger families, 20 or 30 year term policies are a good place to start, and have “ridiculously inexpensive” premiums guaranteed to remain the same for the length of the policy. However, Udell says “general” rules of thumb “should not be relied upon.”
Drury, on the other hand, says if only a small amount is desired to off-set final expenses, then adding a child term rider to the parent’s policy is probably the best way to go.
Cash suggests parents consider a combination of whole life and term life if they can afford it. He says whole life allows them to have coverage that builds cash value, and term insurance is the type of insurance offering the benefit of guaranteed insurability later in life.
In addition to future insurability benefits and cheaper premiums, Udell summarizes perhaps one of the biggest reasons to buy life insurance for children.
“Losing a child may be one of the most difficult things that could happen to anyone. To add a financial burden to the loss adds another element of grief that can be insured against.”
-Desiree Baughman, InsuranceQuotes.org, @DesireeDB
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