Do I need life insurance for little ones?

By Julie Rains on 13 July 2007 (Updated 19 August 2007) 18 comments
Photo: mirko

When my second child was born, I was approached by an insurance agent who thought that I should consider purchasing life insurance policies for my children. The case, as I recall from my then-still-foggy-from-baby-tending mind, was to have money available in case of the unthinkable; equally valuable, it was suggested, was a life insurance policy guaranteed for...for...well, life, if my child happened to have a chronic condition that would render him unable to obtain coverage later in life.

The idea of obtaining life insurance coverage for my children seemed unnatural and creepy.

But, was I being an irresponsible parent if I didn't buy a policy?

Unable to think rationally about this offer, I consulted friend and colleague Dr. Nita Royal, who has a doctorate in financial education and, at that time, presided over the local money management advisory board of which I was a member. She told me that the purpose of life insurance is to replace income. And, since children typically don't earn income, they don't need life insurance policies.

So, I didn't buy an insurance policy and I felt like a responsible adult.

For an expanded, enlightening discussion on this topic, see Bankrate's Life Insurance for Kids?

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Guest's picture
Tziporah

YES! My parents bought a whole-life insurance policy on me at birth. I'm in my fifties now, and there's no way that I'd be able to get life insurance now (the usual stuff that comes with age). Alas, it's for only $1,000 because they thought I'd get married, which didn't happen. I plan to add to it and use it as funeral insurance.

The wonderful thing about buying whole-life now is that your children will never qualify as easily as they will now.

I would recommend buying life insurance for every newborn child.

Guest's picture
TC

Not sure if you've checked around, but the cost of funeral arrangements (casket, plot, headstone etc. etc.) is going to exceed $1,000 by some distance..

you may want to try and increase that coverage if that's your intent.

Guest's picture
TC

first, I'm not an insurance sales-person so I don't get anything for maintaining this position.

I understand it's to replace income - but there could be serious expenses incurred by illness, hospitalization, etc. not to mention a decent burial for your child should the unthinkable happen.

Unless you're independently wealthy, and have amazing health care benefits, I still think it's prudent to expend a few dollars a month for life insurance for your children.

Guest's picture
TinaMarie

My mother bought one of those life insurance policies for me when I was born. I've added to it a few times, and it's up to something like $25K now. As someone who's made lifestyle choices that make me hard to insure (skydiver/pilot/ride a motorcycle/scuba), it's nice to not have to jump through the hoops some of my friends have to get a policy.

Guest's picture
MS

Unless they are a child model or earn some other kind of income, all they really need is enough to cover final expenses. Most of the time, this can be purchased as a rider on the parents' plan.

Guest's picture
Aliya

First you need to understand why insurance is taken. The answer will clearly indicate whether to take a policy or not.

Justin Ryan's picture

...but they don't always grow up and buy insurance. My mother bought insurance policies for both my brother and I when we were little, and it's the only life insurance either of us has. For my brother, who has a wife and three kids, it's really important that he has that $25,000 now, because he can't afford to buy any for himself. So, you might consider it an investment in thier future, so they will have it if they don't, can't, or won't buy it for themselves, or even better, an investment in your grandchildren's future, because they are the ones that are really going to benefit, especially if it is the only insurance thier parents have.

Julie Rains's picture

I was a bit older (though not that old!) when my kids were born so we had money set aside for their use. This is for another post and discussion but some folks may be able to afford term insurance but not whole life insurance.

Guest's picture
Guest

It is a complete waste of money. Whatever funds you would have spent on the policy, if put into an s+p fund, would yield you and your family a much better result.

Your friend who told you that life insurance should be used to replace income is correct.

You made the right choice. It's a no brainer.

Philip Brewer's picture

The key with insurance is: only insure the risks you can't afford to take on your own. You need to insure the life of the primary breadwinner--and disability insurance is probably even more important. Most people need to insure their house--and their car, unless it's old and no longer of great value. But the life of a small child? Insuring that doesn't make any sense. (And the theory that the child will have "guaranteed" access to insurance in the future is awfully speculative to be a basis for any major financial decisions. How much insurance will he be able to buy when he's 45? How much will it cost? What would ordinary term life cost him at that point? Your agent won't be able to answer any of those questions, and he'd have to be able to answer all of them for you to be able to make a reasoned financial decision.)

 

Guest's picture
sylrayj

I didn't know that my son would have what's probably Aspergers. He's years behind in his ability to take care of himself - he might never be able to keep a job. Our daughter was an extreme preemie - no idea how things will go there, but she's got insurance.

When my dad died, my mom entered a long, long cycle of depression. It's one thing to have to pay for funeral costs - it's another to have to have the resources to keep going, to go long enough to get out of the darkness if you lose someone so incredibly precious to you. I hope it won't be me who has to endure the loss of my kids, and I hope that the insurance moneys will help whoever needs the support when I can't be there to hold them myself.

Guest's picture
Rob123

I am a life insurance agent and I firmly believe in Whole Life insurance on little ones. Especially the kind that is paid up in 20 years.

I often sell the 20 Pay Life plan. This is permanant insurance that builds significant cash value and the dividends pile up as paid-up additions to the original death benefit. (i.e. $25,000 at age 1 turns in to $50,000 at age 42 because of dividends). This plan gorws far after it is paid up.

How can this not be a smart idea?

Those who disagree are the kind of people that like to spend money on themselves.

Guest's picture
Guest

...and in some parts of the country, and in some demographic groups, the life expectancy of young people isn't as high as it should be. For these families, life insurance for children makes horrifying sense.

Julie Rains's picture

There may be a reasonable alternative to paid-up insurance, such as investments in the child's name that may yield a higher return. 

Guest's picture
Leslie

I have 5 children. I was able to buy $10,000 of TERM life insurance for all but one child at a cost of $25 a year (one child was already considered uninsurable at age 10). I can't invest $25 a year and have it add up to the cost of a funeral - which can easily run $5,000 to $10,000. When they turn 25 they can take over the policy themselves and increase the value if they need more. Or perhaps I'll just keep paying so I know I always have the money available to pay for a funeral.

Guest's picture
Guest

Term life insurance is cheap because insurance companies end up paying on only 2% of them. Permanent life insurance is an investment for the future.

If you can afford to pay for a funeral and the time you need off work to grieve, then don't spend the money.

If you want to help set your child up for having a "fall back" in the future, then definitely look into whole life or universal life. Mine has helped pay for college and has loaned me cash for bills when I needed it. And I have enough insurance to pay off every bill and mortgage if I die, so my wife won't have to worry.

Guest's picture
ray

My parents bought me a $20,000 policy when I was born. It cost $6 a month. I'm now 30, and the cash value of it is several thousand dollars, projected to be close to $70,000 when I retire (I know- no guarantees there).

I eat well, exercise, yet when I tried to get a term life policy a few months ago I had a weird result from my urine test and they doubled the original rate offer. I re-did the test (came back normal) but they still wouldn't budge on the rate. If you buy whole life young enough, it makes a lot of sense to me. But at my current age, only term makes sense now.

We just got my daughter a $25,000 policy for $120 a year. Funeral costs are expensive, and the worst case is when she goes to college she cashes it out for $1,000 or so. Best case is she never has to use it until long after I'm gone, and maybe she gets some decent cash value out of it when she's at retirement age.

Julie Rains's picture

Thanks for sharing your story. In regard to your attempt to get a life insurance policy, hopefully you can find another company to underwrite you or try again in a couple of years.