Should You Buy Life Insurance on Your Kids?
As an insurance agent, nothing makes people change the subject faster than bringing up life insurance for kids. I am far safer talking about your house burning down, a massive lawsuit being filed against you or even the chances of you being kidnapped on your trip to Cancun.
When you see a company like Gerber or Nationwide advertising life insurance for your children or grandchildren however, it’s not necessarily for what you think. Would the policy pay a benefit if the unthinkable happens? Yes, but that’s not why you would buy it. Statistically speaking, the chance of mortality under age 18 is between 5,000 and 8,000 deaths per year (that’s after age one). That’s taking into an account a very large group that includes individuals with significant chronic illnesses which probably skews the numbers quite a bit. For comparison, the chance of death for a 40 year old male is one in 663 every year.
The point being, even if you did buy life insurance for a child for “that reason” it would be a silly investment as it generally doesn’t make sense to buy insurance for an event extremely unlikely to happen.
So why would you buy life insurance for a child?
There are two basic reasons this makes sense. For one, you can lock in that child’s insurability for their entire life and that actually does matter. Life insurance companies are actually pretty picky ailments like asthma or even a minor surgery can greatly affect insurance cost or even cause a denial. I had a client who developed sleep apnea at age 20 and found himself unable to get life insurance at any price from any carrier. You might think of all the radios ads you hear advertising life insurance for $10 a month but that’s only available if you are in perfect health, what insurance companies called super preferred.
The second reason you might want to think about life insurance for a minor is cash value. Permanent life insurance policies (as oppose to term life insurance) accumulate cash value. That cash value grows tax free (as long you don’t cancel the policy and remove the money) and can be used later in life to buy a house, help pay for college, buy 1,000 cases of Pop Tarts, etc. Sometimes life insurance policies get a bad wrap as an investments, like anything you just need to understand the policy you are getting and ask a lot of questions about how the policy works. A permanent life policy can be a good beginning investment vehicle for a child along with a 529 plan and obligatory pink ceramic pig that you must break with a hammer to access (why do people always break those in movies!? They have a hole in the bottom to take out the change!).
For any kind of life insurance discussion, contact your personal insurance agent to learn more or just tell your kids they’ll be buying their Pop Tarts one a time.
This article was written by Tim Gaspar and was featured in the Valley Vantage Newspaper.
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