Do I need life insurance for kids? For many, thinking about getting insurance coverage for their children isn’t appealing. But in reality, there are some very valid reasons to consider it.
So let’s take a look at some of those reasons right now.
The Grieving Period and Loss of a Child
Losing a child is emotionally devastating. Getting back to any kind of normal routine quickly would be unthinkable.
Parents who experience the loss of a child often say they had to take six months off of work, minimum, just to cope with the loss. Life insurance proceeds allow you to step away from work to be with your family during an unimaginably difficult time.
Final Expenses - Life Insurance For Kids
Let’s face it, many people don’t have $20,000 to pay for unexpected funeral costs. A child’s insurance policy helps to cover these final expenses if you don’t have access to emergency funds.
Very few people look into life insurance before they have kids. However, once your baby arrives, everything changes. SmartParenting Advice.com
Guaranteed Future Insurability
In my opinion, the most important reasons to consider an insurance policy for kids is to guarantee their insurability into adulthood. Unfortunately, some children develop health and lifestyle issues that affect their insurability.
For example, if you have a child that develops diabetes or takes up an extreme sport, many insurance companies will not underwrite that risk.
Children with developmental issues are also viewed by insurance carriers as problematic. For example, attention deficit hyperactivity disorder (ADHD), is more prevalent than ever. Statistically speaking, kids with ADHD have a higher incidence of accidental death, self-medication with drugs/ alcohol, and higher rates of suicide.
Securing insurance for your child when they are very young gives them access to life insurance as adults.
When it comes to life insurance for kids, there are basically a few ways you can go.
1. Child Term Rider: Life Insurance for Kids
For less than $10 per month, you can add a child term rider to your existing term insurance policy…or when you apply for new coverage. This rider covers each and every one of your children. Even those that haven’t been born yet.
Coverage usually ranges, depending on the carrier, anywhere from $10,000 to $30,000. So for example, if you have three kids, a $25,000 child term rider covers each child for $25,000 at a total cost of $10 per month.
Many child term riders also offer future guaranteed insurability options that have to be exercised before the child turns twenty-one. These could include the option to purchase multiples of the base coverage and roll that into a brand new standalone insurance policy for your young adult. Again, this is accomplished without providing any medical evidence or underwriting.
This is the most affordable option for many parents but guaranteed insurability coverage amounts are limited.
2. Individual Term Life Insurance Policy
If you’re thinking about getting life insurance for kids, a standalone term insurance policy for your child is another option. Ivari, for example, has a term 30 product they market not only to adults but to children as well. For approximately $30 a month you can purchase a $250,000, 30-year term policy on a 5-year-old male child. This coverage stays in force until the kid turns 35.
This guarantees the child’s insurability in two ways. First, you’ve got coverage on the original policy for 30 years with a guaranteed monthly cost which never increases over the 30-year term. Secondly, you have the option of converting or switching the $250,000, 30-year policy into a permanent policy that offers coverage for life.
You have to execute this option within the 30-year period and again, there are no physical or medical tests required to qualify.
The cons of this plan? You’re paying a premium for 30 years which adds up to about $10,000 total cost. Not to mention, converting term coverage to permanent coverage is expensive. At age 35, this young man’s monthly costs increase from $30 per month to $153 per month for $250,000 of permanent coverage (Ivari’s Universal Life) which he pays for life.
3. Participating Whole Life Policy For Children (Our Recommended Option)
Whole life insurance is designed to last your entire life. It has two components, an insurance piece, and an investment piece. Every month you make a payment, one portion goes to pay the pure cost of your insurance. The remaining portion goes into an investment account attached to the policy.
Money in the investment account compounds over time and may grow into a nice nest egg. This money is referred to as the cash value and can be used, tax-deferred, to help fund education, start a business or put a down payment on a home.
There are different ways to pay for a whole life policy. You can pay over your entire life or you can choose options to pay the policy over a shorter period of time – like 20 years.
A small, 20-Pay, whole-life policy could be a good option for your child. Some of these plans have guaranteed insurability riders. For example, Equitable Life has one of the best future insurability options in Canada. You pay an extra $8 per month on a participating whole life policy to add their flexible guaranteed insurability rider.
This gives you or your child the option of purchasing $500,000 of additional life insurance in the future. Within prescribed limits, you can purchase up to $500,000 of term or permanent insurance, between the ages of 21 and 45. This can be accomplished without answering health questions or undergoing a physical exam. Equitable’s whole life policy has the most generous future insurability rider in Canada.
Whole Life vs Individual Term Insurance For Children
In my opinion, guaranteeing future insurability is one of the most important reasons to consider insurance for your child.
Purchasing a stand-alone term policy on your child’s life is a viable option but you may end up paying premiums for 30 years with nothing to show for it. Of course, your child is protected over the 30-year term! Not to mention the fact you have the option to convert the coverage to a permanent plan.
On the other hand, Equitable Life’s, 20-pay, participating whole policy may offer the best value. For $30 per month, that same 5-year-old boy has base coverage of approximately $30,000. When the policy is paid up in 20 years, the total cost of insurance is $7,200 (240 months X $30/ per month). But that’s not all, the cash value is close to $4,000 and continues to grow along with the death benefit.
So what did this achieve? For $30 per month, your child is covered with $30,000 of life insurance. Enough to take care of final expenses. More importantly, you guaranteed the future insurability of your child. They also have the option to purchase $500,000 of insurance without any underwriting when they turn 21.
After 20 years when your child is 25, payments stop but the policy stays in force. Even if you didn’t execute the insurability option, you have something to show for the money you invested.
Bottom Line: Life Insurance for Kids
For most people, buying life insurance for their children is something they don’t want to think about. However, if you’re thinking about protecting your entire family and lifestyle, it’s worth considering.
If money is an issue, a term rider s the most economical route to take. For $10 extra per month on your term policy, all your children, including the unborn are covered for up to $30,000.
If you do have a little extra to spend, 20-pay, whole life insurance for kids – with a guaranteed insurability rider – is the way to go!
Life insurance for kids is a useful tool.