Should you buy life insurance for your kids?


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In most cases, it’s not recommended you buy life insurance for children. Life insurance is, first and foremost, financial protection. It helps dependents cover the bills when a breadwinner dies. Your child isn’t making a salary. No one is depending on them financially in a worst-case scenario.

While it’s true that life insurance rates go up as a person ages, the odds of your child getting priced out of or denied a policy when they actually need one are slim. Learn more here

On top of that, most life insurance for children, like the Gerber Life Insurance you’ve probably seen advertised on TV, is whole life insurance. If you compare term vs whole life insurance, whole life insurance costs six to ten times more compared to term life insurance. 

Why people buy life insurance for children

Life insurance for children is generally marketed as a financial tool that:

  • Serves as an investment or savings vehicle for the child’s future expenses, like college

  • Covers funeral expenses in the event of the child’s death

  • Locks in affordable premiums at a young age

  • Protects your child’s insurability

However, unless your child has a medical condition, these policies are generally not a sound investment (more on why in a minute).

How people buy life insurance for children

Child life insurance is sold by most major insurance companies and there are a few, like the aforementioned Gerber Life Insurance, that specialize in the product. 

Parents can purchase children’s whole life insurance for the child. This policy pays out a death benefit in the event of a worst-case scenario. They can also add a child rider to their own term life insurance policy.

Is life insurance for children a worthwhile investment?

Permanent life insurance policies – universal, whole and variable – have a cash value. That is, you get life insurance with a death benefit, but part of your premium payments fund a cash account that in theory should grow in value over time. That’s why some parents find life insurance for their children appealing: They get protection and interest-earning savings at the same time.

But life insurance for children isn’t a good investment vehicle. Depending on the kind of whole life insurance policy you buy, the cash portion earns interest from the life insurance company’s investments, or at a predetermined rate set by the company, or in some cases from dividends of the company’s annual profit. Some whole life policies guarantee a minimum cash value, while other types don’t.

When you invest money normally, you choose what you do with it. You can work with a fund manager or take it to a company like Vanguard and invest it in a low-fee index fund. You can choose what types of funds you invest in.

With whole life insurance, administrative costs are almost always higher than what you’d pay at a financial institution, and you have no control over where you’re putting your money. Plus, you’ll likely average a higher rate of return investing that money on your own than in a whole life insurance policy. Learn how much life insurance costs here

So while it seems like you’re killing two birds with one stone – insuring your child and investing – it’s more like you’re getting an unnecessary life insurance policy (with expensive coverage) and a half-baked investment vehicle (with high fees and low growth).

If you need to insure your child’s life, we suggest doing so by adding a child rider to your term life insurance policy. A child rider provides a death benefit if one of your children passes away. A single rider generally covers all of them and the add-on is pretty cheap. You can buy a unit of $1,000 worth of coverage for about $5 per year. Learn more here

Do you need to protect your child’s insurability?

Probably not, unless your child has a medical condition that will make it harder for them to get life insurance when they’re an adult. Your child’s policy won’t lapse when they turn 18 or 21 — they get to keep it. So, in this instance, you are guaranteeing they have some life insurance coverage when they’re older.

It’s natural for parents to worry a healthy child will develop a medical condition before they reach adulthood, but, unless you have a family history of debilitating genetic conditions that develop early in life, it’s highly unlikely they will. Moreover, you can buy child life insurance to protect their insurability, were they to develop a medical condition under the age of 18.

As for locking in premiums, most adults have no issue securing affordable life insurance when they purchase a policy in their 20s and early 30s.

Figure out how much life insurance you need here.

Alternatives to child life insurance

As for college savings and future nest eggs, these alternatives to child life insurance give you more bang for your buck.

If a child education plan is what you’re concerned about, consider a 529 plan. They’re made exclusively for higher education costs and have some nifty tax benefits.

If your child is old enough to be earning money, maybe with an after-school or summer job, you can manage an IRA for them and match their earnings with contributions, giving them a head start on retirement.

If you’re concerned about them getting a head start on saving in general, open a custodial account for them. You can invest like you normally would, and hand the account off to them when they turn 18 or 21.

Remember, it’s more important to make your child the beneficiary on your life insurance policy than to buy them one of their own.

This article originally appeared in Policygenius and was syndicated by 

Featured Image Credit: kate_sept2004.


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