If you run a household, life insurance for yourself and your spouse is often a smart financial decision. However, whether life insurance for your children is worth the money is another question entirely. To answer this question, it’s worth considering the pros and cons in order to make an informed decision.
What Most People Consider
In most cases, life insurance policies are purchased to replace lost income and pay for funeral and memorial expenses if you or your spouse dies. However, these circumstances don’t usually apply to children. Most children don’t have a job and, even if they do, it usually doesn’t offer any substantial income. Families with secure finances and steady income shouldn’t have a disproportionate worry about funeral and memorial expenses either.
It’s true that families with lower incomes or poor finances may be suddenly forced into debt if their child passes away. It’s often possible to add a child to your current life insurance policy at an extra premium to cover those expenses. If that’s not possible, you can purchase a small death benefit, which covers about $10,000. These are typically cheaper options that you should explore before purchasing life insurance on your child.
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Protecting a Child’s Future
There are other considerations to keep in mind when you’re considering life insurance for children. If you have certain hereditary illnesses in your family or have concerns for your child’s health early on, it’s much easier for your child to get a fair price on a life insurance policy when they purchase it before adulthood. In addition, some life insurance policies will help cover unpaid medical bills if a child dies.
That being said, your child will still likely be able to obtain insurance once they’re older — they just might have to pay a bit more for it.
A Savings Instrument
Permanent life insurance, such as whole life insurance, may also allow you to save for your child’s college tuition or down payment on a first home. Since the life insurance policy helps you generate tax-deferred cash over time, your child can access these savings when a major cost comes along. However, an investment vehicle like a 529 college savings account offers much better returns over time, and underlying costs and fees may decrease the cash value of the life insurance policy.
Ultimately, by weighing the pros and cons, you should be able to determine whether life insurance for your children is the right decision. If you do buy it, be sure to purchase a policy that offers coverage and pricing you’re comfortable with.