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The Life Insurance Blog

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Should Your Financial Plan Include a Life Insurance Policy for Your Kids?

Sep 16, 2016 5:00:00 PM

Life insurance policyNo parent likes to think of outliving their child, but it's a tragedy that happens, leaving families in shock and often ill-prepared. The question of whether or not to purchase a life insurance policy for your children has been debated for years. Provided that your own life insurance needs have been met, there are some sound arguments for why this might make sense. Here are just four reasons that you may want to consider a life insurance policy for your kids.

Money for Funeral Expenses

When a minor child dies, it's emotionally devastating but not always financially so. Most children aren't bringing monthly income into the home that needs to be replaced. If you're worried about covering funeral costs, the best life insurance choice may be a rider on your current policy that allows you to add $10,000 or $20,000 for a family member, including children.

Lock in Life Insurance Eligibility

Purchasing life insurance coverage for a child can guarantee that they have eligibility for coverage as an adult, regardless of health. This is a remote risk, but if your child develops any health issues early in life, this could affect their ability to qualify for the best life insurance policy in their 20's and 30's. According to LIMRA's latest Insurance Barometer Study, of the parents and grandparents who purchased life insurance policies for children, 45 percent did so to lock in low cost and 39 percent were concerned about eligibility in the event of future health issues.

Addresses the Debt Dilemma

While some children are taken through tragic accidents, others suffer through months or even years of medical treatment before losing the battle. A life insurance policy payout could either help or alleviate some of those medical bills that have accumulated over that time.
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Another issue that isn't considered enough is when parents or grandparents agree to co-sign on a loan for a young adult child, particularly a mortgage or a student loan. While you may think that you're a silent partner in these arrangements, what you actually are is a joint applicant who can become liable should the child be unable to pay or pass away. In the case of student loans, Federal Student loans will be discharged or cancelled upon the death of the borrower, but private student loans will not. In fact, the Consumer Financial Protection Bureau reports that nearly 90 percent of private student loans have a co-signer. If you co-signed student loans, the best insurance policy to protect your assets might be a whole life policy in the child's name that lists you as the beneficiary.

Potential Savings Vehicle

Speaking of whole life policies, these are one of the more popular types of insurance policies purchased for a child because the choices are somewhat limited. Yet, this permanent life insurance policy has the benefit of a savings component. This cash value will grow on a cash-deferred basis and can later be used for such things as college expenses, a downpayment on a home, and even retirement.

While some critics argue against buying a life insurance policy for a child, there are many valid reasons for the investment. As long as your own life insurance and investments are in order, you should be able to find the best life insurance policy for your children or grandchildren that provides some additional safeguards. Contact us with any questions about different coverages or request a quote today.

 

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Topics: Whole Life Insurance, Life Insurance, Family Protection, Children