Is Taking Life Insurance For Your Child Worth it?
One of the greatest desires of parents is to have healthy kids that outlive them. No one wants their kid to suffer or go through pain. With the COVID-19 pandemic, life insurance for children became a popular topic. It prompted most people to buy child life insurance. So, what are life insurance benefits for children, and is it indispensable? To answer this and more questions, read on;
What Is Child Life Insurance?
Life insurance for a child is a contract with an insurance company whereby they will pay a death benefit if the child passes. It is ideally the same as life insurance for adults, with some slight differences. With adult life insurance, the policyholder is the one covered by the policy, while in child insurance, the child is insured by the policyholder, who can be a parent or legal guardian. The policyholder also receives a payout if the insured child dies.
Normally, child life insurances are whole life insurance policies that provide lifelong coverage provided that the premiums are always paid.
You can buy term insurance policy for yourself as an adult and add your rider until they reach a certain age. The policy may also be converted to a permanent one at an additional cost. However, you cannot buy a term insurance policy for your children.
Benefits Of Buying A Child Life Insurance Policy
Below are some of the reasons why parents, grandparents, or legal guardians go for child life insurance;
It Guarantees Future Insurability
Most child life insurance policies are usually a form of whole life insurance; therefore, they provide lifetime coverage as long as premiums are up to date. It is beneficial if the child develops chronic health conditions like diabetes. This ensures that the child is insured for several years until they reach a certain age, whereby they may have to buy additional coverage.
Save For The Child’s Future
Whole life insurance policies have a cash value, a savings component that parents can explore. It is usually given at a fixed rate and can be borrowed against or even paid out once the policy is surrendered. Therefore, you can save for your child’s education and other activities. It is also tax-deferred; hence you will not pay taxes on any gains until the money is withdrawn.
Lock In Lower Premiums
Children pay lower premiums than adults. Therefore, low rates for policyholders are best enjoyed for child life insurance policies.
It Caters For Funeral Expenses
No one ever wants to imagine their child dying, but unfortunately, it sometimes happens. In case death occurs, the life insurance policy will cover the cost of final expenses. This will help the family take the financial burden off and focus on mourning the loss of a child.
However, it is cheaper to add a rider to your life insurance policy to cover the child instead of taking a whole life policy for them if the main goal is to cover funeral expenses.
Cons Of Buying life Insurance For Your Child
Below are some of the disadvantages of buying life insurance for your kids;
It is A Long Term Commitment
One of the things you need to consider when taking a whole life insurance policy is that you will be paying the premiums for years. Whether you get laid off or have other priorities or goals, this is a must. Therefore, if you have a tight cash flow, you may be forced to waive your policy, which will not benefit you.
It Offers A Lower Return Rate
Whole life insurance policies have low returns, which you need to note. For example, it will take 15 years to break even when you take life insurance for a newborn baby. Better investments will give you higher returns; hence, you need to establish your main goal for taking up your child’s insurance.
It Is A Financial Trade-Off
Buying life insurance for your child is a financial trade-off as you will be giving up money that could be used in other investment ventures or to support the family.
Its Coverage Limits Are Low
Most insurers limit the children’s life insurance coverage to around $50,000 or $75,000, which is pretty low, especially if you have a family to take care of.
Is Life Insurance For Children Worth It?
Life insurance for kids has many benefits, such as offering a safety net when your child passes away, lowering insurance rates, and being a saving venture. However, even though you will get saving opportunities by your cash value, insurance companies will charge you a fee, which you need to consider. The fee may counteract your savings; hence choosing other ventures may be better for you.
You should also ensure that you have taken care of your finances before taking a life insurance policy for your kids. This means setting up an emergency fund and paying off debt. This will help you be clear-minded on the best insurance for them and why you need it.
Moreover, do not buy child life insurance before getting coverage for yourself. You must prioritize yourself as insurance companies require that parents have their own policy before insuring their offspring.
Talking to a financial planner is recommended to understand the implications of buying your child’s life insurance before doing it. They will advise you on the market standings and which insurance company will fit you best. However, ensure that they are not tied to one insurance company to avoid biases.
