Someone asked me the other day, “Ted, is it morbid to ask you whether I should buy life insurance on my children?” It was an interesting question, and one we often get from parents. The American Council of Life Insurers says that only about 15% of the people under the age of 18 have life insurance. An average policy for people under 18 is around $5,000 with the primary purpose to cover funeral expenses and burial costs. There are varying schools of thought on this subject in the financial community, and here are some considerations to think about around this subject.
Remember that you as the parent are the real wage earner and the person that needs to be insured the most. It is not recommended to buy life insurance on your children until you are adequately insured. Since children for the large part don’t earn wages, any additional cost will be an extraneous expense to your budget.
On the pro side of this argument, it can be very legitimate to purchase a small policy to cover funeral expenses, burial costs, and other expenses at the death of a child. If you work for an employer with a quality group benefits plan, you may be able to purchase a unit (generally $10,000) through work for a cheap price. If you have a current policy such as a whole life or universal life insurance policy, you may be able to add a children’s rider for a few bucks to accomplish the same goal of having money in case of a premature death. Some parents have started a permanent policy where they save from $25 to $100 a month that builds up some cash value generally with a face amount of $25,000 to $50,000 in death benefit. This can be seen as an alternative savings plan for your kids, and in addition may allow your child to have a permanent policy without having to prove evidence of insurability down the road.
On the con side, nobody wants to think about the death of their child or even remotely consider what may happen financially. If you think statistically about the probabilities of a child passing away, the percentages are so small that it may not be a quality financial decision at all. Even if the premiums are very cheap, every dollar you don’t spend on insurance could be put towards a college savings plan.
There is never a wrong or right to this decision. Looking at life insurance as a whole can be a tricky part of building your financial plan. Remember that most term insurance policies will be the same price for a child under 18 no matter what their age (i.e. 9, 11, or 15), and some companies like Genworth will offer a 30 year term policy on a child under 18. If you have more questions, e-mail me by clicking here
Ted Jenkin, CFP®, AAMS®, AWMA®, CRPC®, CMFC®, CRPS®
Co-CEO and Founder oXYGen Financial, Inc.
Request a FREE consultation: www.oxygenfinancial.net
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