We spend so much time talking about why adults need life insurance (income protection, burial costs, and so on) that it's easy to overlook why you should also consider insuring your children.
When we think about it, we reason that our children don't contribute to the household budget—in fact, anyone with children knows that raising them significantly depletes the household budget! Purchasing a permanent life insurance policy for a child, on the other hand, can provide them with financial benefits later in life (in addition to the death benefit).
So, before you get sucked into internet debates about how to get your baby to sleep or what kind of diapers to use (or if you've already gone through that and are dreading the next round of parenting debates), here are five things you should know about buying life insurance for your child:
1. Plans for life insurance "age." A great reason to buy juvenile life insurance is to ensure that your children are covered from the start, and as they get older, they may be able to take advantage of riders that allow them to increase their coverage at a guaranteed rate regardless of their health. People's health, including children's health, changes, and having a policy in place can help ensure they get the coverage they need regardless of their health.
2. It provides a solid foundation: While there are tax-advantaged savings vehicles for retirement and college, this is not always the case for other large expenses that young people face, such as car down payments, weddings, and first home purchases. The cash value of a policy can be borrowed against for these expenses, but failure to repay reduces or cancels the death benefit.
3. Not sure if you should get them their own policy? Incorporate them into yours. Examine your own life insurance policy to see if there are any easily affordable riders that will cover the children.
4. Do not purchase the first policy that arrives in your mailbox: Your contact information is made available to life insurance companies by the same marketing clearinghouses that ensure you receive weekly updates on your pregnancy. Before committing to a policy, make sure to compare prices and speak with an insurance specialist or advisor who can help you understand your options.
5. There is a safety net in place. We all want our children to be happy, healthy, and strong. However, if the worst happens, as it did for the Koonsman family (you can hear their story here), juvenile life insurance can act as a buffer, covering burial costs while also allowing parents to take time off, care for their other children, and allow everyone to grieve as needed. And, as the Koonsmans' story shows, they were able to honor their daughter Hope's memory by establishing a scholarship in her name.
What Isn't Life Insurance?
Do you have any questions about life insurance? I'm not sure I blame you. When I first started writing about finances more than a decade ago, I had little understanding of life insurance.
I was aware of life insurance because it was provided by my employer, and I considered $50,000 coverage to be a substantial sum of money. I also recognized insurance company names from late-night television commercials and the occasional piece of junk mail.
I used to believe that "insurance" was something you had to have for your car, home, and health. The "life" section was a big blob of "other." If that's the case, here are a few pointers to help you focus—by understanding the "nots."
1. Typically, workplace life insurance is insufficient.
I discovered a few years ago that many people never look beyond the life insurance provided by their employer. Workplace policies are a nice perk, but they are usually limited to one or two times your annual salary or a set amount, such as $50,000. Furthermore, when you leave the company, your coverage usually ends.
How far will that go when you consider what has been left behind for your loved ones: a loss of income and, more than likely, debts and bills? What about rent or mortgage payments, child care, and college tuition?
A Life Insurance Needs Calculator from a reputable source, such as www.lifehappens.org/howmuch, is an easy way to estimate how much life insurance you require.
2. Life insurance is NOT a luxury item.
Many people have never considered buying life insurance because they believe it is an unnecessary expense. Consumers believed the cost of a 20-year, $250,000 basic term life insurance policy for a healthy 30-year-old was three times higher than it is, according to a recent Life Happens and LIMRA study. Younger people, in particular, overestimate the cost of a term policy.
What would you say if you had to guess the cost of the aforementioned policy? That policy will set you back about $13 per month. Certainly not a luxury—most of us spend more than that on a meal out.
3. Life insurance is used for more than just funeral expenses.
While funeral costs are significant and a major reason people buy life insurance, it does so much more. Life insurance payouts can help replace lost income, pay off a mortgage, ensure a college fund, or protect a retirement nest egg if you die.
The proceeds of a life insurance policy are typically tax-free and can be used for whatever your loved ones need now and in the future. Isn't it incredible?
4. Life insurance isn't just for the physically fit.
Life insurance becomes less expensive as you get older and healthier, so don't rule it out just because you're not in Ironman shape!
Many people avoid buying life insurance because they believe they will not be eligible. However, it is often possible to qualify when certain medical disorders, such as diabetes or high blood pressure, are under control with the help of a doctor or medication. You may even be able to get coverage after a heart attack. Just keep in mind that working with an experienced insurance agent is generally recommended if you are concerned about a health issue and qualifying for coverage.
If you're feeling overwhelmed by all of this information and don't know where to start, keep in mind that a life insurance agent will meet with you at no cost to discuss your needs and assist you in selecting life insurance coverage that fits your budget. If you don't already have an agent or advisor, click here for help finding one. You can also use the Agent Locator to find a local agent.
Remember, the right agent or advisor can help you make sense of the chaos and get you on the path to the financial future you want, complete with the security your loved ones desire.