Fact CheckedDo 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 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 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, to cope with the loss. Life insurance allows you to leave 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
The most important reason for considering 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 who develops diabetes or takes up an extreme sport, many insurance companies will not underwrite that risk.
Insurance carriers also view children with developmental issues 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.
Regarding life insurance for kids, you can go in a few ways.
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 all of your children, even those who have yet to be born.
Depending on the carrier, coverage usually ranges 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 must 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 considering 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 to adults and children. 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 that never increases over the 30-year term. Second, you have the option of converting or switching the $250,000 30-year policy into a permanent policy that offers life coverage.
You must execute this option within 30 years; again, no physical or medical tests are required to qualify.
The cons of this plan? You’re paying a premium for 30 years, which is about $10,000. Converting term coverage to permanent coverage is expensive. At age 35, this young man’s monthly costs increase from $30 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 nest egg. This money is the cash value and can be 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 for it over your entire life or pay the policy over a shorter period, 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 Canada’s best future insurability options. You pay an extra $8 monthly on a participating whole-life policy to add their flexible guaranteed insurability rider.
This allows you or your child to purchase $500,000 of additional life insurance. Within prescribed limits, you can buy 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 Canada’s most generous future insurability rider.
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 for your child’s life is a viable option, but you may pay premiums for 30 years with nothing to show for it. Of course, your child is protected over the 30-year term! Not to mention, you can convert the coverage to a permanent plan.
On the other hand, Equitable Life’s 20-pay, which is a participating whole life 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 guarantee your child’s future insurability. They also have the option to purchase $500,000 of insurance without any underwriting when they turn 21.
Payments stop after 20 years when your child is 25, but the policy stays in force. Even if you didn’t execute the insurability option, you have something to show for your invested money.
Bottom Line: Life Insurance for Kids
Most people don’t want to consider buying their children’s life insurance. However, if you’re thinking about protecting your entire family and lifestyle, it’s worth considering.
If money is an issue, a term rider is the most economical route. For $10 extra per month on your term policy, all your children, including the unborn, are covered for up to $30,000.
If you 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 valuable tool!
