Many people have asked me lately about life insurance for their children or grandchildren.
Let me PREFACE this message by stating that kids DON’T NEED life insurance SINCE nobody is depending upon their income to make ends meet, unless perhaps they are a child TV or movie star. And this is certainly not a subject to dwell on…
But here are a couple of reasons why many parents like to have life insurance on their children that may be worth considering.
I’ll also give you some general QUOTES HERE on various children’s policies and different ideas to consider.
One reason some parents are interested in insuring the lives of their children is to protect against the HIGH cost of final expenses. Many couples, especially those just starting out, could not afford to pay these costs from savings.
But more importantly, most parents couldn’t afford to take the weeks off from work for a natural grieving period. Insurance could allow time for this from a financial perspective. As a parent myself, I couldn’t imagine going right back to work, but without life insurance proceeds, one may have to.
Another reason many parents and especially grandparents insure children, is to guarantee at least some future insurability if there is ever an adverse change of health.
Since life insurance on children isn’t exactly necessary, you have to admit it is PRICED right. Here are a few painless ways to handle it.
One plan is available for children ages 1 month through 20 years old. It is a fixed $20,000 death benefit (no more or less).
The cost for a policy like this might be just $72 per year per child (or $6/month) and covers them through no older than age 25.
IF DESIRED, the policy can be continued for the rest of the child’s life at a cost of $232/year ($21/month) and the policy will begin to accumulate cash value.
Another idea: there are some term insurance policies that a parent can buy on themselves ALONG with a RIDER which can insure ALL children in the household (15 days to age 19).
A “rider” is just an optional add-on to a policy. Most life insurance policies have at least one or more riders that are available that make the life insurance policy better in some way.
Once bought, the kid’s rider (coverage) will terminate at age 25 or date of marriage — whichever occurs first. So the children would be covered through that time.
The price of this rider for ALL kids COMBINED (again as part of a parents policy) costs about $6 per year for each $1,000 of coverage. For example, if you wanted $10,000 on each of your kids and you had two children, the total cost would be $60 per year (10 times $6). It would cost exactly the same if you had six children.
The parent must buy a policy on themselves covering as little as $5,000 with a whole life policy, or $100,000 on a term policy, in order to get the kid’s rider. Each insurance company may have a similar option — or may not.
The children’s rider cost (above) is simply added to the parent’s policy.
A third alternative is just buying a permanent (cash value) life policy on the child. Policies can be issued from age 1 month through 25 for as little as $5,000 coverage up to $100,000.
For example, a $50,000 policy on 10 year old might cost $279/ year to guarantee that death benefit to age 100 and build an equal cash value at that time.
However, one could also “turbo-charge” that idea.
When properly set up, a cash value insurance policy could act as a “bank” for the child as they grow up.
When structured to build cash value, instead of providing a death benefit, a properly designed life insurance policy can be a great place for tax-free savings.
The growing cash inside of the policy could be “borrowed” to pay for college, provide a down payment for a first home. In effect the child would be “borrowing” from themselves.
Or the right policy design could even give the child a source of tax-free retirement income. That’s right. Think of it as a ROTH IRA on steroids.
But that is a topic for another article.
By the way, all of the quotes above are from A+ carriers (rated by AM Best where A++ is the only higher rating attainable) and are only included to serve as a guideline. Life insurance quotes are based on many factors, so help from a professional independent agent is important.
So in summation, I hope that the idea of insuring a child’s life is no longer repulsive. There ARE valid reasons to do so. although it would hardly be a financial planning priority.