Should You Buy Life Insurance For Your Children?
Most adults know the importance of life insurance; after all, one in three households would have immediate trouble paying living expenses if the primary wage earner died, according to the 2016 Insurance Barometer Study by Life Happens and LIMRA.
Did you know you can also purchase life insurance for your children? Some insurance agents say purchasing life insurance for your children is a smart financial move, but many financial advisors caution against it. In this podcast episode, we discuss the common reasons for purchasing life insurance and whether they make sense for your children.
Protecting future insurability
Children with medical problems may have trouble qualifying for life insurance later in life, which prompts some parents to purchase policies for their children and guarantee some level of coverage.
However, this is often an expensive safeguard against an unlikely situation. Concern about insurability is relevant to children who are genetically at risk for illness or are already medically compromised.
Even if their child is healthy, some parents may purchase them life insurance because they don’t believe the child will buy it later on. However, this may not be enough of a reason to buy a policy; life insurance for a healthy 30-year-old only costs an average of $160 annually.
The death benefit
No one likes to think they will outlive their child, but the death benefit is the most obvious reason for purchasing life insurance.
If the unthinkable happens to your child, a life insurance payout could cover:
- Funeral expenses
- Family counseling
- Basic expenses, if you need to take time off work
- Medical bills
However, many financial advisers recommend putting money into an emergency fund, which you have more control over, instead of buying your child life insurance.
You may also be able to add your child to own your life insurance policy for a small premium.
Providing cash value
Some parents may consider permanent life insurance for their children because it can build tax-deferred cash value. This value can be borrowed against or surrendered for money in the future, providing children with the funds for college tuition or even the down payment for a home.
However, many financial planners say life insurance is not always an ideal savings and investment tool. Before purchasing life insurance to use as a savings component for your children, experts suggest calculating how much life insurance fees would grow over a specific term if invested elsewhere, then comparing that amount to the cash value of the policy during the same term.
The bottom line
Should you buy life insurance for you children? There is no one-size-fits-all answer. Every family has different needs, so determine what is best for your children by considering the above uses of life insurance.
Many financial advisers suggest prioritizing other financial matters before you think about buying your child a life insurance policy such as:
- Building a healthy emergency savings fund
- Making sure you have enough life insurance and disability insurance
- Establishing savings for your child’s college tuition