Why it may be important to start buying coverage early
Typically, life insurance is purchased for adults. This is understandable: after all, adults are usually the main breadwinners in a family (unless a kid happens to be a Hollywood actor). Life insurance is often bought as a form of income replacement in the event of a premature death, so insuring the lives of parents is crucial. What often gets forgotten, is that there are some good reasons to purchase life insurance for kids as well.
Here are some of them:
• Early coverage will generally help your child qualify for life insurance as an adult: one key advantage of buying life insurance for children is that, depending on the product, they are then able to purchase insurance for themselves later in life as an adult without submitting evidence of insurability. This becomes particularly important if they develop serious medical issues that could otherwise render them uninsurable.
• Cash value can be accessed as needed: one component of permanent (i.e. not term) life insurance is “cash value”, which builds up over time. The cash value in a policy can be accessed in a number of ways, some of which are well-suited for children or young adults.* For example, the parents can borrow against it to help fund a kid’s post-secondary education if necessary.
Read more: What is cash value?
• In the unlikely event that a child passes away, life insurance can be used to cover funeral expenses: this reason to buy life insurance for your offspring is, admittedly, quite difficult to even think about it. Emotions aside however, for some people a funeral and associated costs can be daunting. Having money to cover any expenses should something terrible happen won’t make the situation any easier but it will have a practical benefit.
• It can provide money for grieving parents: again, this assumes the worst-case scenario happens and a child passes away. Many parents will be either unable to work or prefer to take some time off to grieve. Having a financial cushion in the event they cannot work allows them the time to step away from their job and not having to worry too much about funeral expenses .
How to purchase coverage for your kids
There are a couple of ways to go about buying life insurance for your children. Some of the most common options are:
• You can purchase a specific life insurance policy for them: this is a policy designed to insure children from ages 0 to age 18, specifically for a minor.
• You can add kids to an existing policy: if you already have coverage as an adult, you can often purchase a ‘rider’ that includes protection for your kids as well and can often be converted to permanent coverage without needing any additional underwriting.
In both these cases, you will pay a small monthly premium to insure your children. The reason the premiums are so inexpensive is because (thankfully) mortality rates for young people are very low.
Child life insurance and financial planning
Truth be told, life insurance coverage for children isn’t for everyone. It may be, for instance, that for those with a tight budget, sending a kid to camp is a higher priority than buying insurance on them. Alternatively, other parents may be in a situation where, should tragedy strike, funeral expenses aren’t a problem.
What is important is that parents think about their needs and the needs of their kids before deciding whether or not to purchase coverage. You may realize, for example, that due to a family history of illness, there is a decent chance that your child will at some point develop a medical condition that could make it difficult to obtain life insurance if they were not already insured.
In a case like that, you might end up relieved that your kid was already covered.
NOTE: *Please keep in mind that cash value will depend on many things, including the terms of the policy, the face amount, and the length of time the value is allowed to grow. While cash value does grow, it may not be large for juvenile products by the time the policy holder enters post-secondary education.
Disclaimer: This article is for informational purposes only.
416540 CAN/US/UK (07/18)