If you've recently had a child, you may be wondering if purchasing life insurance for them is a good decision. In general, life insurance is meant to replace lost income after someone passes away, so the concept of buying it for a child can sound strange. However, whole life insurance will be with your child for the rest of their life, and purchasing it early helps to lock in low rates and guarantees they'll have it available to them. To help you decide if purchasing insurance for your child is worth it, read on to learn more about its upsides and downsides.
Upsides of Purchasing Life Insurance for Your Child
The biggest advantage of purchasing a whole life insurance plan for your child is that premiums are low for children and it guarantees insurability in the future. By purchasing insurance early, you can lock in premiums at a low rate. If your child later develops a condition such as diabetes, your premiums won't change. People who have health conditions can struggle to find affordable life insurance, even when they're young. When you purchase insurance early, you're guaranteeing that your child has at least has some amount of insurance when they're starting a family and buying a home.
Your health matters for insurance premiums as well. If you or your spouse develop conditions with a genetic link such as cancer or Alzheimer's disease, it can affect your child's premiums when they purchase insurance. The guarantee of insurability is one of the strongest arguments for purchasing insurance for your child, since it hedges against the risk that you or your child will develop medical issues that make insurance hard to obtain in the future.
Purchasing life insurance for your child can also help with final expenses if they pass away. If funeral costs would put your family in a financial bind, an insurance policy can give you the money that you need to arrange for your child's final expenses. The money from the policy can also be used to pay for services such as grief counseling or to cover time off of work if your child passes away.
Downside of Purchasing Life Insurance for Your Child
The biggest downside of purchasing insurance for your child is that the return on your investment isn't very large. Whole life insurance policies have an actual cash value, which means that they can be seen as investments—you're able to cash them out or borrow against them. The cash value is guaranteed, unlike investing money into stocks or a mutual fund, but the fact that it's a guaranteed return means that the yield on the your investment tends to be very low.
Investing in mutual funds for your child will often provide a greater return for the money you spend. If you're thinking about purchasing insurance for your child to help pay for their college education, you may be better served by putting that money in an investment with higher yields.
Overall, this means that purchasing life insurance for your child is a great idea as long as you're using it as insurance and not as an investment. By purchasing insurance now, you're guaranteeing that your child will have it available when they're starting a family and have dependents that rely on their income. You avoid the risk that your child may develop medical issues that make insurance expensive or impossible to obtain.
Share29 December 2020
When I lost my job, I also lost my health insurance. I've never had to buy health insurance on my own before, so when I went to my insurance agent, I had no idea where to start. The coverage options, deductibles, co-pays, and premiums were confusing. I wasn't sure how to make sense of all of the tiers and doctor's networks. I created this site to help others who've never purchased health insurance before. The posts here are full of resources for insurance coverage, and I hope that it will help you to find the policy that's right for you.
