You most often hear about parents buying their own life insurance policies so that in the event of an untimely death, their children will still be well provided for. It makes sense; the parent is the caregiver, so what would happen to the child if the parent didn’t have life insurance?
However, some people want to know whether or not it makes financial sense to buy life insurance for children. Taking a life insurance policy out on your child is a very personal decision, and for some parents it may feel like the right thing to do.
Best Life Insurance for Kids
In the following article we will shed some light on buying life insurance on children. We have attempted to address the majority of frequently asked questions regarding this topic. However, if you have further questions please feel free to give us a call or leave a message below.
You may also be interested in our review of the Gerber Grow Up Plan which is a great policy for kids.
Why cover your child with a life insurance policy?
Whenever someone passes away there are the unfortunate expenses that come with funerals and burials which can add up to thousands of dollars. It’s unlikely that as a parent you will have saved up money for this purpose, meaning that in the event your child suddenly passes away, you will incur a lot of unexpected expenses. If you take out a basic life insurance policy to cover your child(ren), you won’t be financially strapped by your child’s death.
Aside from burial costs, there are other expenses that may arise after the death of a child. Some of those expenses may include:
- Lost wages. Losing a child is probably the most painful kind of death. In many scenarios, parents need weeks if not months off from work to grieve the loss of a child. If you have other children, this time off may be even more important as your other children will need extra care and attention.
- Professional Help. This may be in the form of a counselor for you or your children and/or you, a cleaning person to come and pick up around the house when you just don’t have the mental or emotional strength to do so, etc…
Losing a child is debilitating and the hardship will be compounded if you don’t have the help and support you need around you. Sometimes the best thing you can do for yourself is hire someone to help you get through it. The proceeds from your child’s life insurance will provide the resources you need to get through another day.
Can the cash value of my child’s life insurance policy be accessed?
By the way, this is the most important section of this article on life insurance for children.
If you get whole life insurance for children then the policy may be used for policy loans or the cash can be withdrawn when your child becomes an adult. Your child or grandchild may want or need to use this money for things like college tuition, living expenses, purchasing a vehicle, investing, etc…
Wait a second! Why would I get whole life on my kids? Dave Ramsey says to buy term and invest the difference.
So whole life insurance is probably one of the most misunderstood and misrepresented financial products out there. Practically every talking head, from Suze Orman to Dave Ramsey, misrepresents or generalizes whole life insurance.
The truth is, whole life insurance comes in many different packages. And depending on the company you choose, it offers several amazing benefits.
Consider these benefits to whole life insurance for children:
Guaranteed death benefit protection. Your child will most likely not need life insurance because statistically they are not in danger of dying until decades down the road. However, one day your child will have a family of their own. At that time, having a life insurance policy in place to protect their own family is a fantastic benefit.
Guaranteed level premiums. Your child’s whole life insurance policy’s premium will remain level, i.e. fixed, for the life of the policy. If you get life insurance for your kids at a young age, the premium will be significantly lower than trying to get life insurance when they are older.
Guaranteed cash value accumulation. Whole life insurance for children can be designed for high cash value life insurance growth at the temporary expense of the death benefit. One fabrication told by financial gurus is that whole life insurance cash value takes years to grow. However, a properly designed policy with paid up additions will grow cash value much quicker.
And although not guaranteed, participating whole life insurance companies pay an annual dividend. Many of the top companies we work with have paid dividends for over 100 years straight. The whole life insurance dividends can be used for:
- Cash out for whatever you want.
- Leave with the company earning interest.
- Pay Premiums on the policy for a time.
- Purchase additional paid up life insurance, increasing both the cash value and death benefit.
In addition, whole life insurance has the following tax benefits offered by the Internal Revenue Code:
The death benefit is paid income tax free. The life insurance beneficiary receives the death benefit with no strings attached.
Cash value grows income tax deferred. There are no taxes due on the cash value growth and there are no taxes on the dividends.
Policy loans can be taken tax free. Policy loans can be taken tax free using your cash value as collateral. Policy loans can be used for anything, such as paying for school or a wedding, investing in real estate, or paying off debt.
Best Life Insurance Policy For Children
When designing a life insurance policy for children there are many variations to choose from. You will need to decide if you want to pay lifetime premiums, such as with Whole Life to 100. You also have the option of Life Insurance to 65, where premiums are paid until age 65. However, a good policy for kids would be either 10 Pay Whole Life Insurance or 20 Pay Whole Life Insurance.
Why would 10 Pay Whole Life be best?
The reason we like 10 Pay Whole Life for children is because the premiums are paid for for a 10 year period and then no more premiums are necessary. In addition, by adding appropriate riders to the policy you can continue to grow the cash value and death benefit, even though no more premiums are being made.
Life insurance riders for children
There are a many different ways to design the policy but you would want to consider adding a few different life insurance riders.
Some valuable riders are included in the policy, such as the accelerated death benefit rider. The ADB rider pays out a portion of the death benefit while you are still alive if you are diagnosed with a qualifying terminal illness.
One important rider to add to life insurance for kids is the guaranteed insurability rider. This rider allows your child to add additional life insurance with no proof of insurability, i.e. no medical exam or health questions. The additional life insurance can be added at different predetermined ages and at special occasions, such as marriage.
Another important rider is paid up additions. Also known as the Additional Life Insurance Rider, paid up additions allow you or your child to contribute extra premiums into the policy to increase the death benefit and cash value. This in turn increases the effectiveness of the policy as more cash value equals more dividends. You can also elect to use your dividends for paid up additions, increasing your child’s policy’s efficiency dramatically in a short period of time.
And still another rider worth your consideration would be whether or not to include a waiver of premium for disability rider. If your kid becomes permanently disabled, the rider will waive all premiums due for the life of the policy, i.e. until your child dies (hopefully many years later).
You see, there are many variables when it comes to the best life insurance for children. No two cases are the same and there is no one size fits all policy.
Reasons to get life insurance for children
Without sounding totally cynical, life insurance policies are designed for every “worst case scenario”. If you are the parent of a young child, or your want life insurance for your grandchild, you really have no idea what the future will hold.
While we hope that your child grows up to be a healthy, high-functioning adult, there are many things that may occur along the way. Taking out a life insurance policy early on is a smart idea because later, when other factors come to light, your child may not be eligible. If you take a policy while your child is still a healthy then the policy will remain active.
Some of those unfortunate scenarios include:
- Substance abuse. God forbid your child hits the rebellion of teenage years hard, the life insurance policy you took out while he/she was still a child will still be valid. If you try to take out a life insurance policy on a teenager with any kind of substance abuse problem (tobacco, marijuana, alcohol, or illicit drugs), it may not be possible. Some hard drugs, such as crystal meth, may make it nearly impossible for your child to ever get insured, even when he/she is a recovered adult. If you take out a whole life policy, your child is insured from early on, no matter where life takes him/her. If you have a family history of substance abuse, insuring you child could be a gift to your grandchildren.
- Medical illness. If you insure your child while he/she is still healthy, the policy will remain in place even if he/she develops an illness as serious as cancer. If, however, your child is diagnosed with cancer prior to you buying a life insurance policy, it will be nearly impossible. Buying a life insurance policy is a pre-emptive measure. If one of your children does become terminally ill, it is likely to be very costly. Having a life insurance policy will make sure that following his/her demise, you are not adding to you loss by rendering yourself bankrupt.
You can always purchase you own policy with a child rider
Buying life insurance on your kids is not the only way to get coverage on them. Another great route to take, and often a less expensive alternative than buying an individual life insurance policy on each child, is to purchase a life insurance with a child rider.
A child term life insurance rider will cover all children under 18 for one set price. Therefore, if you have one child the price would be the same for a family of ten children. And if the child chooses to keep the policy, he or she can covert to a whole life insurance at age 18 or up to age 25 for children that are dependents.
Best Life Insurance for Children
There are many factors to consider when deciding on the best life insurance for children. As this is an important decision to make, it is crucial that you look compare your options before settling on a policy. Ultimately, you want to have the best coverage possible.
We at TermLife2Go represent dozens of the best life insurance companies in the market. We have no vested in pushing any company more than another; our goal is that you, the client, get the best possible coverage for your situation. If you would like a free consultation regarding life insurance coverage for your children, please get in touch with us today.
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