I know I am in the minority when I say I think that if you can afford it, life insurance on a child is not only a reasonable purchase, but a good one! Regardless of whether I am having this discussion with a friend or even in professional circles it seems that the topic is often seen as too morbid for most. There are two main reasons why I am such a proponent of buying life insurance on a child, and why I just completed the process myself.
Full Disclosure may be important – I do not sell life insurance through this site, and while I am license to do so, to date I have never sold a life insurance product myself offline either.
Why Everyone Should at Least Consider a Child Life Insurance Policy
First and foremost, there are a lot of basics within the personal finance world that should be covered before considering this type of purchase. I am not recommending that you ignore your debt, your own retirement or even your own protection needs, so that you could buy a child’s policy! That would be idiotic and if any advisor begins to go that route…run. Life insurance transfers two risks that, in my opinion, make it like a good option for families to take a look at:
Replacement of Income
Life insurance is often sold as a replacement of income protection for the surviving family members. Similar to my contention for non-working spousal life insurance, if something were to happen to my child I am not going work. For how long? I have absolutely no clue, but I would like money to be a far, far second thought if something were to occur. I can’t even imagine having to go back to work if something were to happen to my daughter simply because a mortgage payment needs to be made (especially when the alternative is spending time with The Wife and the Son).
When I wrote about the topic of life insurance on a child’s life when my son was born, I received the following comment,
I just wanted to share some insite (sic) on the topic. I just recently lost my newborm (sic) son and it was devastating!! I am the mother of three other children and when i had to abruptly leave work and stay in the hospital, it affects not only me but my whole family financially. Now I do carry term life insurance on my children through my job and when you have a baby you would add them on your policy within thirty days after birth. From my own personal experience you need time to grieve and let things sink in. For weeks I felt like I was In the twighlight (sic) zone,nothing felt real. The point that I want to make is that when something happens untimely and involves such a delicate matter its very hard to deal with. the last thing you want to worry about is finances. It makes the situation much worse…
I really felt for this woman, any parent would. THANKFULLY, the mortality rates of children and toddlers are very low in America, and most choose not to insure against this risk, however this is a risk that should be, at the very least, discussed.
A second reason I really believe in this type of protection contract is the ability, today, to make sure that my daughter will always have insurance for her future family. Upon the completion of the process I will have a permanent product that I can maybe hand down to my daughter should she ever be in the situation where she is unable to obtain life insurance due to an autoimmune disease or even poor life choices.
Most mutual companies will rate children and toddlers as “Standard Non-Smokers” so if my daughter develops type 1 diabetes she’ll have a policy that will provide her future children a death benefit paid at much lower rates than if she applied for life insurance at 18, 28 or 38 when she has a family to protect. In addition, with the riders that can be added on you could even provide your child with the opportunity to increase the death benefit without a medical exam.
In my next post I’ll publish the details of the policy I purchased to protect against the unlikely event my daughter prematurely passes away.