7 Reasons You Should Buy Life Insurance for Your Child
Written by
Laura Gariepy
Edited by
Angela Corry
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You might have purchased a life insurance policy for yourself to ensure your family is taken care of when you die. But have you considered buying coverage for your child(ren)?
While the idea may seem morbid, there are several reasons why securing life insurance for your little ones can be a good move. Here are seven of them.
Preparation for the Worst
Should the unthinkable happen, you’ll have cash to pay for the funeral and cover living expenses if you need to stop working for a while to grieve.
“No one wants to think about it, but unfortunately, on a daily basis, families lose their children at a young age. And it’s a lot easier to handle the emotional aspect of that if we don’t have to handle the financial aspect of it as well,” said Cordell Reynolds, managing partner at Grace Unlimited Group.
Multiple Options Exist
Many parents opt for a whole life policy for their child. However, some parents secure coverage via a child term rider on their own policy. Some parents buy coverage through their employer’s group plan at a discounted rate, but that protection often ends when they leave their job.
Simple Qualification
Since children are usually healthy, they normally don’t have to undergo a medical examination to qualify for life insurance. However, you may have to answer some questions about their health condition and family medical history.
Lifelong Coverage
When you take out a whole life insurance policy for your child, you’re protecting them for their entire life (as long as the premium gets paid). They’ll always have that coverage — even if they get sick later and can’t qualify for another policy. Plus, depending on the policy you buy now, they may be able to increase their coverage in the future without proving they’re insurable.
Affordable Protection
Child life insurance coverage can fit most budgets (yours now and your child’s in the future). With a whole life policy, the low premium will stay the same for your child’s entire life (unless they add coverage).
Wealth Building
Whole life policies gradually build cash value over time. Depending on your specific policy’s details, your child may accumulate enough cash to buy a car, put a down payment on a home, defray college costs, or achieve another financial milestone.
Some parents are also buying indexed universal life (IUL) policies for their children. Like whole life insurance, IULs provide permanent coverage. However, they may build cash value more quickly, depending on how policy funds are invested.
No Financial Aid Impact
Building wealth for your child now doesn’t necessarily have to make paying for college harder later.
“Cash value life insurance is not reported as an asset on the FAFSA. This means it does not reduce eligibility for need-based financial aid, it does not appear alongside parent or student assets, and it can coexist with 529 plans or other savings without increasing FAFSA exposure. This is not a loophole; it is simply how the FAFSA currently defines reportable assets,” said Gretta Zutz, financial services executive and co-founder of Aura Legacy.
When It May Not Make Sense
While securing life insurance coverage for your child might be a wise decision, there are some scenarios where doing so may not make sense, such as:
- You have enough assets to self-insure, and won’t need help paying for a potential funeral.
- You’re investing for your child in other ways.
- You aren’t worried about your child’s ability to purchase coverage as an adult.
- You’re currently unable to save for retirement.
“I don’t think that we should put ourselves in the position to overfund someone else’s future when it takes from [our] own,” said Reynolds, who encourages consultation with a financial advisor to look at the big picture.
Important Considerations
The information contained here is for educational purposes only. Coverage terms, conditions and benefits vary from policy to policy. We encourage you to speak with a licensed life insurance agent and other financial professionals regarding your specific situation.
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