Life Insurance and Kids: To Insure or Not Insure?

Whether you’re an expectant parent or already have a few children, there seem to be endless pressures to “do the right thing” when it comes to the well-being of your child; and you’ll go to the ends of the Earth to keep them happy and safe.

One of the things that many parents struggle with is to make a sound decision about is life insurance. Parents are bombarded with ads and junk mail urging them to buy life insurance for their children, but is it really necessary?

Here are some of the main reasons why parents choose life insurance for their children:

Death Benefits

No parent wants to experience the loss of a child, let alone think about losing one. Unfortunately, even if you live in the safest of communities or neighborhoods, your child is a risk of being in a tragic accident that could take his or her life.

One of the pros of having life insurance is, in the tragic event of your child’s death, a payout could help cover the expenses related to the funeral, family counseling, and medical bills. Life insurance could also help replenish lost wages when parents take an extended leave of absence from work.

Statistically (and thankfully), the chances of your child dying are slim. You may be better off saving money away in an emergency fund than having life insurance for your child.

Cash Value

A permanent life insurance plan for your child may build tax-deferred cash value. This means that the policy’s cash value can be accessed by your child later on in life. He or she can use it for college tuition or even a down payment on his or her first home.

A major downside to accessing the cash value is that the rate of return isn’t that great. Remember, one of the main reasons for having life insurance is for the death benefits. While no one wishes for any child, of any age, to die, there are other savings programs that may offer a better cash value.

More Life Insurance Later

We all know how difficult it can be to get insurance coverage if you have a pre-existing condition. Life insurance may be a good choice if you child has a medical condition early on in life.

Even if his or her condition would be a disqualifier for insurance late in life, life insurance adds a little extra security and can guarantee the opportunity to buy more insurance as an adult.

One downside of purchasing life insurance for this reason alone is that most young adults are healthy and have no issues getting insurance. By the time your child would need the “guaranteed insurability” as an adult, the limit may be too small to provide adequate coverage.

Do Your Research, Talk with Insurance Professionals

There’s no clear answer whether or not life insurance for your child is worth the monthly investment. Many would argue that it’s just as easy and more beneficial to save money is a separate account.

If you’re on the fence, talk with your insurance agent to have a more in-depth discussion about the pros and cons.

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