Congratulations on the birth of your new child! Here – why don’t you take out a life insurance policy on them…
For $25,000 in coverage you can pay a couple of hundred dollars per year.
But wait, why do your kids need a life insurance policy? Isn’t the entire idea of life insurance to create a financial backstop in case of an early death?
Do children earn money? Sad as it is to say – Won’t the Loss of Child result in ‘less’ money needed, not more?
Lets backup and talk about what Children’s life insurance is…
What is Children’s Life Insurance:
There are two means to purchase life insurance for kids in the United States:
Method One: Buy a Standalone life insurance policy on your child.
This method sets your child up on a whole life insurance policy which is permanent. The policy will last as long as you make the payments and or they reach maturity. Typically the policy can be converted then. This is the more expensive option.
Method Two: Add your Child as a Rider to a Parent’s Existing policy.
This method adds to your term life insurance policy. It lasts as long as the term policy exists or you remove the rider. This is generally the less expensive option.
Why Do You Need Children’s Life Insurance:
There are lots of reasons that some insurance agents and companies claim that you need insurance on your children. The only good one I have heard for most people is that it allows grieving parents to take time off of work. This makes good logical sense. However when you consider the cost of the insurance and the rather low chances of a childs death, its seems not a great use of money. Are there others reasons to consider this form of insurance?
Sure – if you child has a real steady income, why not. As an example a child actor that is routinely involved in paying of the household bills – Yes buy them life insurance.
The Math Behind Children’s Life Insurance:
If you use the cheaper of these two methods here (the rider) and pay $200 per year, after twenty years you will have spent $2,400 in life insurance payments for your child.
But wait, paying $2400 means that you have that much less money saved for their college education or as a gift for them when they get married. Or your 401K account is that much lower, and I am not adding in growth and interest at all.