Do You Need Life Insurance For Your Child?

Taking out a life insurance policy on your child may seem unnecessary. After all, if the unthinkable were to happen, there obviously aren’t any wages that need to be replaced. But having life insurance means far more than just covering the costs associated with a funeral and bereavement. It could ensure that your child is insurable as he or she ages and can also act as a way to accumulate wealth.
Much depends on your financial situation. If you have a sizeable emergency fund and aren’t concerned about the future insurability of your child, having a life insurance policy for the child may not make much sense. But if you don’t have money set aside, life insurance could be a good move. (Read more, here: Intro To Insurance: Types Of Life Insurance.)

Provides Coverage

A main reason why people get life insurance is to protect loved ones in case of an untimely death. In a two-income household, if something happens to one spouse, there will be a need for income replacement. And even with a child’s death, there are still many costs associated with funeral expenses, as well as the impact that the loss could have on you, your job and your family (say, if you needed to take an extended period of absence from your work). By having life insurance, such expenses will be one less thing to worry about.

Helps Insurability

One benefit of taking out a life insurance policy on your child is that it often helps their insurability later in life. For example, if the child develops a condition or a chronic illness, it could be difficult for them to get insurance coverage as adults with a preexisting condition. But if a policy was opened for the child at birth, that policy stays in effect even should he or she later become ill. It also will keep them insured as young adults, which is helpful: having life insurance isn’t typically a priority for young people.

Enhances Wealth Accumulation

Another bonus of a life insurance policy is that it can help you accumulate wealth, often in a tax-advantaged manner. That’s because the cash value of the policy can increases on a tax-free basis. There are limits in terms of how much you can pay into the policy before it’s treated differently from a tax perspective. You can also borrow against a life insurance policy’s cash value and, in many cases, you can withdraw your paid premiums without causing a tax event. You will have to pay taxes on any gains if you cancel the policy. Because the money is being invested, you can benefit from compounded interest. The longer your money is invested, the larger the return you stand to get.
That said, accumulating wealth shouldn’t be a major reason for taking out a life insurance policy on your child. There are many other ways to grow income in order to save for your child’s college tuition or a down payment on a house. (Read more, here: Is Life Insurance A Smart Investment?)

Shop Around

Insurance is a competitive industry, with agents, brokers and insurers hawking a slew of different products. When it comes to purchasing life insurance for your child, you need to comparison-shop. After all, each insurer varies in terms of how much they pay out, so it behooves you to get multiple quotes. Doing your homework ahead of time will ensure that you get the best coverage possible for your budget. (Read more, here: How To Shop For Life Insurance.)

The Bottom Line

Whether you should take out a life insurance policy on your child depends on a host of factors, including your current financial situation. Along with providing peace of mind, life insurance can also protect your child’s insurability later on and even could help you save money for the future.

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