Buying Life Insurance on a Child’s Life

Warning this post might be considered too morbid for some people.

I had an interesting conversation the other week with one of the financial planners in my office that got me thinking.  There was a client who was in the midst of buying life insurance on a young child (about 5 years old), I had never seen this so I asked the planner, “What up wid dat?” (I may have been more professional than that).   The Child obviously had no income to replace.

The planner, responds, “Evan, do you think you would be able to work if you lost your child?” I thought for a second and remembered the emotional sucking of losing a baby, nevertheless a child (I think there is a distinction there, but not the point here).  I quickly said, “Nope, there is absolutely no chance I could work after losing a child!”  The Planner’s response, “Exactly”

I just told my wife about this post and she called me morbid and told me I was sick for even discussing insurance on a child’s life, and I get that the death of a child is a subject that most parents’ stomach can’t handle, but this is a legitimate protection gap that I think most people have.

I am not talking about one of those stupid $25,000 Gerber insurance contracts.  Rather, I am discussing that if your family spends $100,000/yr, then insure your child for $100,000 or even $200,000 so you don’t have to work until you are ready.

Cost of Life Insurance on a Child

But, Evan, how much does it cost to buys life insurance on a child? First and foremost, it should be noted that I work for one of the big guys, think Fortune 100 notshady Internet company, so there may be cheaper options out there:

  • A $100,000 Whole Life Policy on a 5 year old would cost less than $40/month (This contract would have a guaranteed $4,500 of cash in it at age 18 and about $6K at current dividend rates); and
  • A Guaranteed Universal Life Policy (A permanent policy with no cash; think Term forever) costs less than $15/month for $100,000

Before I get the angry buy term and invest the difference comments – the company I work for does not sell 20 year term for anyone under the age of 18; I am not sure if other companies do, but I don’t have access to their illustration systems.  Would $15 to $40 bucks a month be worth the option not to work for a long time in case your child dies?

Too Morbid? Good Point? Anyone have insurance on their kids?

6 Responses to Buying Life Insurance on a Child’s Life

  1. Not morbid at all. Quite appropriate.

    I never considered this. I’ve always laughed at the thought of buying life insurance for a child. Now it kinda makes sense.

    I wonder– would the inability to work after the loss of a child due to emotional trauma be covered under a disability policy?

  2. M,

    Great minds must think a like, because my wife asked me the same exact question when she read the post.

    If it does not then we know the argument for life insurance on the child…but even if we assume it does cover the emotional trauma, I still think the post is valid for a couple reasons:
    1) Most people don’t have individually owned DI, they have employer based DI which means they lose their job and their child they are SCREWED.

    2) Depending on the state DI will only ocver 66% of the income, which is normally great but we discussed a need for 100% replacement

    3) Combining both of the points – every policy is different, some have a month window of you being on your own, some have 90 days of you without income draining your savings (if you have any).

    Just some thoughts.

  3. That is an interesting point of view. I have to admit that I never thought of it from that angle, too. I will say this, if you have an emergency fund (which ours right now is in the 12 month range of expenses) then that would take care of it for a bit.

    As I mentioned in my Tweet, it’s hard to argue about someone paying $5-$15/mo for a policy- as long as they are saving way more than that in retirment accounts and such. I just had an example of a retired couple with limited income that were paying on policies for 2 adult children and 4 grandchildren. The husband had been recently laid off and their insurance agent was telling them to buy more insurance!!!! I was horrified. No future income in sight on a limited budget, they were already shelling out over $400/mo in insurance premiums and he wanted them to buy more. Needless to say he is now their “former” insurance agent.

    • While your emergency fund will take care of it, buying a 20 year term or a Whole Life product on a 1 or 2 year old is CHEAP like pennies on the dollar cheap.

      Your example is a rough one. Did you talk to them about collapsing the policies and take the CSV or offer to ‘sell’ it to the children. Depending on the company they can turn that whole life product into a stream of income to help with their retirement. That is the kind of agent that gives the whole industry a bad name.

      By the way, love your site Jeff…thanks for stopping by here.

  4. My agent had me get 25K whole life policies on all my kids not just for funeral expenses and time off but for when the kids become adults they are pre-qualified to buy 50k additional whole life every 3 years starting at age 18 without a physical.

    • That is actually a great point. I know my buddy, who is a type 1 diabitic, WISHES his parents did that. His premium (we are 28) is 6x what I have to pay. Can you say OUCH

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