Never buy life insurance for children. Life insurance is a tool that can protect your entire family. There are two ways that this tool helps them already:
1. It protects you from an estate tax
This is what whole life and universal life insurance are for.
With the recent change in estate tax law allowing people with up to $5 million to die estate tax-free, fewer and fewer people need whole life (thank goodness).
(Note that buying life insurance for kids is only one of the big mistakes people make when it comes to life insurance. There are a host of other issues you should avoid as well.)
2. Providing Income When You Can’t
The second reason you buy life insurance is to replace income in case you aren’t around to produce it — and if people you are responsible for depend on your income. (People usually buy term insurance for this purpose.)
That’s it. There are no other reasons to ever buy life insurance.
So, unless your kid is Justin Bieber, you don’t need life insurance for your children because they don’t have to worry about income replacement or estate tax issues. They’re (hopefully) too busy just being kids.
Your kids aren’t out there earning a significant amount of money, so why would you need life insurance?
Of course, this is where the crafty insurance agent who sells permanent life insurance sometimes steps in.
He’ll try to convince you to buy universal life insurance for your kids as “the best investment you can make.” Do not fall for this.
Here’s why I’m offering this warning: The argument that children need life insurance rests on an additional debate between term life insurance versus whole life insurance.
Whole or universal insurance is often presented as insurance with a savings vehicle.
The misguided salesperson may try to convince you to use this insurance as a way to save for your kids.
I like saving for kids, but I hate life insurance for the little tykes. Even though life insurance costs are relatively low for youngsters, it’s a complete waste of money unless, again, you are Mrs. Bieber.
The problem is that the administrative cost of the life insurance is so heavy that it eats into any returns that the savings make.
Additionally, the investment choices that universal insurance offer are very limited.
If you are interested in saving for your children’s future, which I am sure you are, why not do so with the lowest cost and greatest choice?
Making a conscious choice about this is also a great way to teach kids about money. Don’t saddle yourself with crappy insurance for kids. It’s a complete waste. If anyone tries to tell you otherwise, they are insulting your intelligence.
This article originally appeared on WealthPilgrim.com and was syndicated by MediaFeed.org.
Featured Image Credit: DepositPhotos.com.
