There are really only two reasons to consider life insurance for your children. One would be if a low cost burial policy, as much as most parents would rather not think about that, is easier to manage than actually coming up with burial costs out of pocket rather than from a life insurance policy. The good news on this subject is that even if you ignore the chances are you aren’t likely to need it for burial purposes during their childhood.
The other, and I think the most compelling argument for children’s life insurance is their future guaranteed insurability. There are plenty of children’s life insurance products out there that will either allow a conversion to a large policy at age 23 or so, or, will have several options to increase coverage at future events such as graduation from college, marriage, birth of children and so on. The one time conversion is usually on some type of term life insurance chassis, either as a stand alone policy or as a children’s rider on the parent’s life insurance. Generally a policy that allows multiple future purchases with guaranteed insurability is a whole life policy.
So, the good news with the conversion is that if your child were to develop, say, type 1 diabetes, they could convert to a larger policy at age 23 without being underwritten for that change in health. The bad news is kind of twofold. 1. All children’s life insurance is underwritten at standard rates. It’s cheap when they’re young and you really don’t notice. But when they get to be a young adult in preferred plus rates, well, who in their right mind would convert a standard rate to a larger product when they could apply for and get a policy at preferred plus rates and 2. Just like conversion or any term policy we’ve found out that more and more companies are holding out awful products to convert to. They are usually over priced and under guaranteed.
While the future purchase option on whole life insurance might seem like a better deal since they are just options and you can forgo them, there are again a couple of downsides to the idea. 1. Again your precious young thing was issued a policy at a standard rate class and future options to purchase will be at a standard rate even though they will be young, healthy adults and 2. Most of our kids don’t have pockets deep enough to pursue future purchase options for whole life insurance. While cutely priced when they were babies, they are going to have to weigh the price of buying even small amounts of whole life as young married parents. In almost all cases, even if their health has changed they will be better off at that point buying term. It’s simply more bang for the life insurance buck.
Bottom line. The subject of life insurance to cover your child is a deeply personal one. If it works in your budget and you can live with the future possible downsides and you’re OK with having life insurance on your child, it’s not a bad idea. If you have any questions, call or email me directly. My name is Ed Hinerman. Let’s talk.