Do You Need Life Insurance for Your Children?
Learn how it works and what your options are for kids
Life insurance is one of the things that often comes up at important times in your life, when you get married, buy your first home, or have children. You might find yourself asking whether you need life insurance when you have kids, as well as wondering if you should take out a policy for them, too. Learn when it might make the most sense so you can decide if it's the right move for you and your family.
Why Buy Life Insurance for a Child?
There are a few instances when it might make the most sense to take out a life insurance policy on your kids, including:
- To ensure their insurability later in life and save them the costs of life insurance in the future
- To protect your children's insurability and have the opportunity to build tax-sheltered cash value
- To provide money for a funeral and funds for other related expenses, like loss of work or time off if your child should die due to an accident or illness unexpectedly
Before considering life insurance for children, think about your financial situation. For example, if you are struggling to make ends meet, insuring yourself as a parent first could be the priority. This would provide financial stability to protect your family's lifestyle by leaving them money and giving your partner the ability to provide for your children if something should happen to you.
However, if you're thinking of taking out a life insurance policy on your child, you may be looking to prepare for the unthinkable—losing a child. According to the CDC, there were 3,880 children between the ages of 1 and 4 years who died in 2017. That's a rate of 24.3 per 100,000. For children aged 5 to 14, there were 5,571 deaths in 2017, a rate of 13.6 per 100,000. Life insurance may be able to help if you ever think your child could become a part of this statistic, especially if you struggled with medical bills, debt, or some financial hardships before the loss of your child.
Life insurance is a practical thing that can help cover lost income or money as a result of the death in the family. If you can look at it from this perspective, it can help you determine if you need life insurance for your children now, or if you need to protect other sources of income or secure other areas first.
One other advantage of buying life insurance for children is that rates are based on age and health. A young healthy child will have low costs. Imagine if your parents had bought life insurance for you, would that make your life easier? As people get older their chances of developing illnesses increases, and life insurance policies may require medical exams, or result in higher premiums. Taking care of a whole life policy for kids while they are young will provide them with a safety net later, at a low cost now. It will also offer protection if they ever die.
Life Insurance Options for Children
You have two main options when it comes to children's life insurance:
- A whole life insurance policy with built-in tax-sheltered savings can be transferred to the child's name when they become adults. This gives them potential long-term insurability and is a gift they can hold onto for life. Whole life policies are usually paid up after several years and have a cash value. This can be a double advantage for your kids in the long term.
- You may be able to add a child rider or endorsement to your term life insurance. It provides no savings vessel and is short term. Be sure and ask about whether it secures insurability for kids or is convertible to their own policy.
How Much Life Insurance Should You Get for Your Kids?
Before deciding how large of a life insurance policy to get for your children, ask yourself a few questions:
- Do you have emergency savings to cover other necessary costs? Could you save money in emergency savings account instead of a child life insurance policy that could secure your family for any emergency (be it unexpected funeral costs for children, home repairs, or medical bills instead)?
- Do you have a good health insurance plan to protect your children and your family? A good health insurance plan is a good way to ensure their health and prevent some diseases. Also, consider dental insurance and other supplemental insurance plans. Good health leads to longer healthier lives and peace of mind.
- Do you have a college savings fund for your children?
- Would you use a whole life insurance policy as a savings fund for them?
- What are your risks? Accidents happen to anyone, but do you have specific health risks you are worried about?
Once you know what your financial situation is like, you can find a life insurance policy that works best for you and your family. Any amount of life insurance is better than none, especially if the unthinkable should happen and your family suffers the death of one of your children. You may be able to get a small life insurance policy of $10,000 for just a few cents per day, too, which may fit well in your budget.
Aside from funeral costs, it would not be uncommon for one or both parents to have to take a leave from work, or for siblings to require counseling. Consider these other costs that could come up—life insurance could help.
We hope you and your family never have to live through the death of a child. If your children are healthy and, hopefully, decades away from their death, then a whole life insurance policy may be a smart option for your children. It will give them a savings vessel that they can use later in life.