Is Life Insurance for a Child Really Necessary?

As an advisor, speaking to parents about purchasing life insurance for their child can be a very delicate subject.

Traditionally, you purchased life insurance to protect your family from an unexpected death, which could potentially create financial hardships. For example, for a family with small children, if the primary income earner dies money is still required to maintain the household.

Where is the money going to come from and how long will the savings last? How does one replace that lost income? Most families will not have accumulated enough savings to sustain the same standard of living for longer than 3 months. Without life insurance to protect your income, the consequences can be drastic — the home in which the family has worked so hard to create warm comfortable security for the children, may even be at risk and a drastic reduction in lifestyle may be your only choice.

When meeting with my clients, analyzing the family’s life insurance needs, which includes insuring the primary income earners, is of course my first priority, but there is another side to this. What about protection for your child? Although children are not the income earners and usually do not have a financial impact on the family’s way of life, insuring your child can create future financial opportunities for that child.

Life insurance is primarily based on the health of the individual and the family history of illness or disease. As you grow older, health concerns increase. Insuring a child at a young age creates a safety net protecting the child against future health issues that may determine if they are eligible for insurance, i.e., cancer, diabetes, MS, etc. It also protects the child against the risk factors in dangerous occupations such as the risk for pilots or firefighters. In addition, it can protect your active children for the risk associated with sporting activities such as back country skiing, parachuting, football etc., which normally might incur a decline in coverage or an increase in premiums anywhere from two to three times resulting in high monthly premiums. Purchasing life insurance for your child now, can also guarantee that he or she has the ability to increase the amount of insurance in the future by simply adding a guaranteed insurability rider which allows the child to upgrade his/her insurance in the future… without a medical.

Permanent policies also have the option to lock in rates at a low premium that can be paid up for a limited number of years. The policy can generate a cash value, which has the ability to outperform traditional investments in terms of rate of return. This cash value can then be made available for college funds, emergencies, loans, new business ventures, or to help supplement the child’s future retirement income.

Throughout my practice, I repeatedly hear comments similar to, “I wish my parents would have bought this for me when I was young,” For those parents that have planned ahead, their adult children are thanking them.

In Summary, insuring your child provides them an opportunity to obtain the insurance at a fixed rate. Having the policy paid off in a short period of time creates a cash value that can be used at a later date for his or her retirement, loans or home purchases and avoids a potential refusal from the insurance company in the event they develop an illness and, as a result, cannot obtain new insurance, or even if it possible to obtain the insurance, be rated at a higher premium due to health or age issues.