You've heard of life insurance for adults, but what about for children? Read on to learn about the best child life insurance plans and why your child needs one.
You've bought every possible baby item you can think of for your new bundle of joy. You have stocked up on everything from bottles to blankets to binkies.
But have you thought about life insurance?
Yes, that's right, I said life insurance for your baby.
It's not something that automatically pops into your head when you think of bringing a new baby home. Midnight feedings and baby baths, yes. But, life insurance for your new child? Not so much.
If you are surprised at the thought of buying life insurance for your newest family member, you aren't alone.
According to Forbes magazine, only 20% of parents or grandparents have purchased life insurance for their children or grandchildren.
You've heard of life insurance for adults, but we're here to tell you it's a good idea for children too. Read on to learn about the best child life insurance plans and why your child needs one.
Finding the Best Life Insurance Plans for Children
Just like adult life insurance, there are few different options when it comes to child life insurance.
- Term Insurance
When you purchase term life insurance for yourself or your spouse, some policies offer the option of purchasing an additional rider on your policy. This is an extra policy that can cover your child.
This rider provides a small amount of coverage, usually around $20,000, for additional family members.
Term policies provide coverage for a certain amount of time, usually between 10 to 30 years. If any of the participants on the policy were to pass away, the policy would pay a death benefit to the beneficiary.
This rider is the only way to purchase term life insurance for a child.
- Whole Life Insurance
Whole life insurance policies on children typically have smaller face amount values than what adults have. Usually around $50,000 or less.
Whole life insurance policies provide coverage for the child throughout their entire life.
These policies are unique in that they include a savings account that gradually builds cash value over the life of the policy.
Because of the savings benefit of whole life insurance policies, and the fact that the child will never lose coverage as long as the policy is in place, these premiums are more expensive than term insurance.
4 Reasons Why Child Life Insurance is a Good Idea
Here are some valid reasons why child life insurance plan should be on your radar.
- Funeral Costs
While it's not something we want to dwell on, there is the possibility of a child dying young. The child's life insurance plan would provide a payout that would cover the funeral expenses.
The cost of burying a child can cost upwards of $30,000.
We would never wish this tragedy on anyone, but if it were to happen, having some money to cover all the expenses would lift a huge burden.
There may also be some unforeseen expenses such as grief counseling sessions, extended time off of work, and medical bills.
Not having any additional financial stress in such a tragic time would be a huge benefit for any family going through the grieving process.
- Life Long Coverage
Remember the whole life policies we discussed? If your child is insured with a whole life policy, he or she will be covered for life, regardless of any medical conditions they may develop later on in life.
For example, trying to insure a child with type 1 diabetes is next to impossible. This is usually a diagnosis that comes sometime during childhood. If they already have a whole life policy in place, they will be covered for life.
When you think of life insurance, you may not realize that life insurance policies can also act as savings plans.
The savings account -- or cash value as it is called in a whole life policy -- grows tax-deferred over the life of the policy.
The policy owner can borrow the cash value, or even surrender the policy to get the cash value out.
This cash can then be used for anything from college to a down payment on a home.
Typically what happens is as the child grows into adulthood, the policy can be transferred so the child is now the policy owner. Then they will have a savings account that has been growing for them throughout their early life.
These policies compare well with any other conservative savings account.
- Rider Policies
While the previous two reasons were mostly geared towards permanent life insurance policies, there is a reason why a rider policy might be beneficial.
With a rider policy, only the parent has to go through a physical exam and answer a medical history questionnaire. As long as the parent is healthy, the parent and any additional riders will be covered.
This would be important if you had a child born with any birth defects, For example, if your baby was born with congenital heart disease, a whole life policy would not be possible for that baby.
With a rider policy, that baby will get some coverage under the umbrella of their parent's policy.
Welcome to Parenthood
Now that you have a new baby who is completely dependent on you, you will have to make hard, complex decisions. Decisions that you've probably never had to think about before.
Welcome to parenthood.
Parenthood can be stressful. Especially when you are forced to think about less than ideal situations and circumstances such as a child's death, or birth defects.
Being aware of what insurance products are available will allow you to be able to deal with any real-life situations that may come your way.
Being prepared will only bring you peace of mind as you enter this new phase.
Having a baby is one of the most exciting times in life and we sincerely want you to enjoy it. That's why we are here to help with any insurance needs or questions you might have.
So take the time now to soak in your new bundle of joy. Then call us when you are ready to take the next step in preparing for your child's future.