Should I carry life insurance on my children?
The question of carrying life insurance on children has elicited all kinds of responses over my years of answering that question. Some parents don’t like the idea for emotional reasons. They didn’t want to think about, let alone plan for, the possibility of a child’s premature death. Other parents who had a child with a health problem, for instance child onset type 1 diabetes, saw the logic of having the insurance but were disappointed to know life insurance companies wouldn’t approve a child with anything but very minor health problems. Still others felt like it was a prudent idea, but were undecided between a child rider on their own policy, or a stand alone permanent policy for the child.
There are a few options for life insurance on children. Let me preface these by reiterating what I mentioned in the previous section. Life insurance companies will not write policies on children 18 or under with serious health concerns. With that in mind the most common insurance on a children is to have a child rider on one, or both of the parent’s life insurance policies. These are handy, and cheap but must be purchased at the time you apply for your policy. They can’t be added on later. Kind of an average price for a $10,000 child rider is $65-$70 a year. This one price insures all of your children for the amount chosen which can be as little as $2,000 or as much as $20,000. If you have a new child they can be added by amendment at no additional cost. This is term insurance until the end of your policy or the child’s age 23 with most companies. At 23, in most cases, the policy can be converted to a permanent policy.
Another option is to buy a whole life policy on your child. Through companies like Gerber or Globe you can buy as little as $2,000 up to $20,000. These are stand alone policies so can be purchased after your life insurance is already. If you want your child to go into adulthood with a larger policy you can generally get up to $100,000 through companies like Mass Mutual or Penn Mutual. With these policies you can generally have a guaranteed future purchase option that would allow your then adult child to purchase additional policies on certain birthdays or on occasions like their marriage or the birth of their children.
While the future purchase option may seem like great planning, remember that children’s life insurance is at a standard rate so any conversions or future purchases will be at a standard rate. They may qualify for a much better rate when they decide they need more so make sure they understand that shortfall.
Should I or shouldn’t I?
It’s a very personal choice to have life insurance on your children. If you have a sufficient emergency fund the it may not be necessary. If not it may be a prudent financial move. Like all life insurance it is about the unexpected, but children’s life insurance is also a tool to plan for their future. Going into adulthood with guaranteed insurability can be a real plus.
If you have questions or would like to discuss options, call or email me directly. My name is Ed Hinerman. Let’s talk.