We all want our kids to live long, healthy lives, which is why child life insurance may not feel like a top priority. It’s worth considering, though, as it can lock in low rates and act as an investment vehicle for your children. As your insurance agent, we care about you and your family so we’ve compiled the following list of pros and cons to help you determine if life insurance for your child is the best choice for you.
What is child life insurance? Child life insurance covers the life of a minor and is typically purchased by a parent or grandparent. In general, these policies are whole life products — a type of permanent life insurance. This means coverage lasts for the child’s entire life, as long as the premiums are paid. Coverage amounts tend to be low and premiums are locked in, meaning they won’t go up. Whole life insurance also builds cash value — the policy’s investment component. A portion of the premium is paid into the account, which grows over time.
At certain ages, the child can take ownership of the policy and continue coverage, buy more or cancel the policy altogether. You can also choose to maintain ownership.
The pros and cons of life insurance for children
When deciding if child life insurance is right for you, consider these three popular features.
- Guarantees future insurability
Child life insurance policies typically include or offer a guaranteed purchase option. This means the child can purchase additional coverage without completing a medical exam. The additional coverage available varies among policies, and your ability to buy more may be restricted to certain ages or life events, like marriage.
Pros: This feature can be useful if the child develops a pre-existing condition, such as diabetes, or chooses a risky career, both of which can dramatically impact the cost of insurance and your child’s insurability.
Cons: Healthy applicants in their 20s are likely to secure competitive rates, so if you think the chances of your child developing a health issue are low, child life insurance may not be worth it.
- Acts as an investment vehicle for your child
You can withdraw money from the cash value account or borrow against it. When the child reaches adulthood, he or she can surrender the policy and receive the funds in full.
Pros: The money can cover costs like school fees or a down payment on your child’s first home. It also grows tax-deferred, meaning you don’t pay taxes on the gains until you withdraw the cash.
Cons: Cash value accounts rely on you paying premiums, and can take time to grow. Some financial advisors recommend using other options before considering child life insurance as an investment vehicle.
- Covers costs if the worst were to happen
Losing a child can be extremely painful, and you may incur unexpected costs. Child life insurance policies pay out a lump sum in the event of a death, as long as the premiums are paid.
Pros: The payout can be used for expenses like burial costs or grief counseling. It can also help cover the costs of running a business if you’re the owner and need to take time off.
Cons: It’s relatively uncommon for a child to die in the U.S. Therefore, the risk of going without coverage may not outweigh the cost of the policy.
Larson Insurance is an independent insurance agent located in Lexington, MA. We can provide coverage from many insurance carriers so you receive the right life insurance for your budget and needs! You can reach us at (781) 646-9200 or online at https://crlinsurance.com/.