Are Life Insurance Policies for Children Really Worth It?

Most couples don’t usually dip their toes into life insurance until they are just starting off – usually before or a little after their family starts growing.

Life insurance coverage for mom and dad is a no-brainer. Should anything happen tragic happen to either off them, the widow and children would have income protection when the world around them seems to be collapsing.

Life insurance for children isn’t as cut and dry. Nobody expects their children to die early. Frankly, nobody wants that thought to enter their minds. As a result, they don’t think about buying life insurance for their kids.

But as uncomfortable it may be for new parents, the idea of getting life insurance for their children is a subject worth exploring.

This article examines the pros and cons of life insurance policies for children – how valuable they can be and if they are worth paying into.

Pro: The chief function of life insurance is its death benefit. And should your child suddenly pass away, the death benefit can pay for a memorial or funeral for him or her as well as any lingering medical bills that medical insurance won’t cover.

Con: Unless your child is a movie star, it’s very unlikely that the sudden loss of their financial contribution will affect most households.

Pro: Permanent life insurance can help you build a nice little nest egg, tax-deferred. And your child can use a policy’s cash value a decade or two later to make a sizable down payment on their first mortgage or take a large bite out of college tuition.

Sure, you won’t see the 10% to 15% annual returns of a mutual fund, but the trade-off is that there is very little risk, if any. For big ticket items like a college education or a mortgage, you want to make sure your savings is there when you need it.

This method of saving is simple, yet disciplined. And if need be, you may also be able to withdraw from cash values up to your cost basis, tax free of course.

Con: As stated earlier, the primary purpose of life insurance is its death benefit. Policy loans and withdrawals to access cash value can reduce the death benefit. It could also cause the policy to lapse.

Pro: At any point, a child can fall victim to a disability or develop a chronic illness. Some may run in your family’s history (i.e. diabetes, heart disease, mental illness, etc.), putting your child more at risk than others. Having a life insurance policy before a disability or illness develops will allow them to have protection when they become parents and getting a policy on their own would be very difficult and/or expensive.

Con: The odds of your child becoming uninsurable as an adult are very small. And figuring out how much coverage you want for your child as an adult is an exercise of predicting the unpredictable, such as what their income will be, where they live, and their health.

Ultimately, a family’s decision whether or not to buy life insurance for their children is one that shouldn’t be rushed. My hope is that you use this information to help them figure it out.

Be valuable.

John  McCarthy
Managing Editor,

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