If you have young children, you already know how important it is to purchase life insurance for yourself and your spouse in case the worst should happen and your family needs to replace your income and pay off your debts. But have you ever considered insuring your children’s lives, as well? Of course, chances are your children will all grow up healthy and happy, but the responsible thing to do is to take out at least enough life insurance to cover their final expenses.
You may be able to add your children to your existing life insurance policy, or buy separate policies for each of them. Buying separate whole life policies for your children allows them to lock in insurability for later in life, even if they should develop a chronic illness in adulthood. A permanent life insurance policy on a child also allows you to accumulate cash value in the policy, which can provide extra cash for your family or your child later on.
Why You Should Insure Your Child
Most people think of life insurance as a way to replace lost income in the event that a provider passes away. However, life insurance can also offer cash to pay for final expenses and other costs that a family might incur due to loss. The cost of a funeral alone can easily surpass $10,000, and that’s the kind of money most families don’t have just lying around.
Of course, expenses don’t end there. If you lose a child, you’re not going to want to go back to work straight away. Can you afford to take time off to grieve? How much bereavement time does your employer offer? Can coworkers donate their own sick days and vacation time to a bereaved coworker? A large death benefit could buy you and your spouse the ability to return to work on your own schedule.
You, your spouse, and your other children may also need counseling to come to terms with the loss. Does your health insurance pay for mental health care? What if your child leaves behind large medical bills not covered by insurance? Life insurance can cover these costs.
In most cases, of course, you won’t need to collect the death benefit for your child. That doesn’t mean a life insurance policy can’t still be worthwhile. Whole life and other permanent life insurance policies accrue cash value that could help you accumulate wealth; you or your child could borrow against the policy down the road. Buying life insurance on your child also protects his or her insurability in adulthood, even if he or she develops a medical condition that would normally render a person uninsurable.
Make the Most of Your Child’s Life Insurance
It’s usually a good idea to buy the biggest policy you can afford right out of the gate; even if it seems like overkill, a large permanent life insurance policy maximizes your potential to accrue cash value, and protects the death benefit against inflation. Remember, your child might hold this policy for several decades, so do what you can to protect the purchasing power of the benefit. Not to mention, your child’s life insurance needs will increase as he or she grows older and has children of his or her own.
There are typically three parties involved in a life insurance policy — the owner, the beneficiary, and the insured. When you buy a policy for a minor child, the child will be the insured, and you, the parent, will most likely be both the owner and the beneficiary. However, some parents choose to sign over ownership of a life insurance policy when the child turns 18. Your child can then surrender the life insurance policy for its cash value and use the money to pay for college, put a down-payment on a home, or backpack across Europe.
However, you may want to wait a little longer before handing over the life insurance. A life insurance policy, especially one that has accrued $20,000 or $30,000 in cash value, can make a great wedding gift or gift for the birth of a first baby. Your older, more mature child will be more likely to understand the real value of what you’ve given him or her, and may choose to keep the life insurance policy to give his or her own family added financial protection.
It may not seem necessary to insure the life of a child, but loss of income isn’t the only financial hardship that can accompany an untimely passing. Taking out a life insurance policy on your child enables you to cover final expenses, medical bills, and other costs. But even if you never need to pay those bills, a whole life policy can make a great gift for your adult child one day.
