In today’s uncertain world, parents often seek ways to secure their children’s futures from unforeseen events. One such consideration is life insurance for children. As of July 6, 2024, many families are weighing the benefits and drawbacks of this financial tool designed specifically for minors.
Pros of Life Insurance for Children
Life insurance for children offers several potential advantages. Firstly, it can provide financial protection in case of a tragic event like illness or accident leading to death. This coverage ensures that parents do not face overwhelming financial burdens during an already difficult time. Secondly, purchasing life insurance at a young age typically results in lower premiums. These lower costs can lock in a favorable rate that remains fixed throughout the child’s life, making it a cost-effective long-term investment.
Pros of Buying Life Insurance for a Child
Buying Life Insurance for Children Guarantees Insurability
The biggest selling point of life insurance for a child is that you’re guaranteeing that your child will have coverage even if they develop a health condition later in life.
For example, if your family has a history of genetic medical conditions such as diabetes, it might make sense to insure your child, Meldrum says. Then you won’t have to worry about whether your child will be denied coverage later in life if they develop a medical condition.
If you buy life insurance for a child, you’re also ensuring that the child will have coverage if they take up a dangerous hobby, says Steve Meldrum, an insurance specialist with Swell Private Wealth. For example, Meldrum has a young client who has had trouble getting life insurance because he is a scuba diver—a hobby that insurers consider a high risk to insure.
Moreover, some life insurance policies for children accumulate cash value over time. This feature allows the policy to function as a savings vehicle, which can be accessed later in life for various purposes such as college tuition or a down payment on a home. Additionally, having life insurance early in life can guarantee insurability in adulthood, regardless of any future health conditions that may arise.
Cons of Life Insurance for Children
However, there are also considerations to keep in mind when contemplating life insurance for children. One concern is the necessity of such coverage for a child who may not have dependents or significant financial responsibilities. Critics argue that the primary purpose of life insurance is income replacement for dependents, which children typically do not have. Therefore, some view it as an unnecessary expense.
Furthermore, while purchasing life insurance at a young age can secure low premiums, the overall financial returns may not always justify the investment compared to other savings or investment options. Critics suggest that investing in a diversified portfolio or a dedicated college savings plan may yield higher returns over the long term than a life insurance policy.
Another point of contention is the emotional aspect of insuring a child’s life. Critics argue that discussing and preparing for a child’s death may cause unnecessary anxiety or distress for both parents and children. It may also lead to a misunderstanding of the actual risks involved, as childhood mortality rates are relatively low compared to adults.
Conclusion
In conclusion, the decision to purchase life insurance for children is a complex one that requires careful consideration of both the potential benefits and drawbacks. While it can provide financial protection and long-term savings benefits, it may not be necessary for every family’s financial planning. Understanding one’s own financial goals and priorities is crucial in determining whether life insurance for children aligns with one’s overall strategy.
Cons of Buying Life Insurance for a Child
Life Insurance for a Child Offers a Low Rate of Return
Although whole life insurance policies build cash value, they do so at a low rate of return. So life insurance for a child shouldn’t be a substitute for a 529 college savings plan, Hoang says.
If you buy life insurance for a newborn, it usually takes 15 years before the cash value equals the premiums paid—to break even, that is. However, if you were to invest in a 529 college savings plan and earn a 7% return (the average stock market return), the amount you invested would double in 10 years, Hoang says. You can expect to see much higher returns by investing in a 529 plan than with a life insurance policy.
As of July 6, 2024, families continue to evaluate this option based on their unique circumstances and goals. Consulting with a qualified financial advisor can provide valuable insights and help navigate the nuances of life insurance for children, ensuring that the decision made is well-informed and aligned with the family’s financial future.
