Some may initially think that buying life insurance on a child is crazy! Children don't work and generate revenue for the household, so it would seem like a waste of money to have life insurance on a child. But the question is, is the purpose of life insurance for a child to replace income if their life is loss?
Child life insurance covers the life of a minor and is typically purchased by a parent, guardian or grandparent.
In general, these policies are whole life products — a type of permanent life insurance. Coverage amounts tend to be low, often under $50,000, and premiums are locked in, meaning they won’t go up.
Depending on personal circumstances and needs, other reasons outside of the death benefit to consider buying a child life policy may include:
- Your child’s future insurability is important to you. Most children’s policies are a form of whole life insurance, which provides coverage for a lifetime so long as premiums are paid regularly. Once your child reaches a certain age, they may be able to buy additional coverage, regardless of their current health or occupation.
- Acts as an investment vehicle for your child. Whole life insurance policies contain a savings component, which is called the cash value. This grows over time, usually at a fixed rate, and can be borrowed against or paid out if the policy is surrendered. Whole Life insurance for your child is about giving them access to money for their future! Their cash value could be used for college, start a business, to invest, or even a down payment on a home! Insurance for your child is the gift that keeps on giving.
- You want to lock in lower premiums. Generally speaking, the younger the insured person is, the cheaper their premiums will be. Insurance companies lock in these low rates for policyholders at the time of coverage and will not increase them over time.
- Covers costs if the worst were to happen. Losing a child is extremely painful, and you may incur unexpected costs. Child life insurance policies pay out a lump sum in the event of a death, as long as the premiums are paid. The payout can be used for expenses like burial costs or grief counseling. It can also help cover the costs of running a business if you’re the owner and need to take time off.
Of course, every parent will have different ideas for how to help secure their children’s futures. Getting life insurance policies on your children can help to jumpstart protecting their finances and insurability into the future.
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