I recently had someone ask me if I have ever seen anyone take out life insurance on their children. After 15 years in this business, I told them, I have in fact handled many life insurance policies for the children of clients and even have insurance for both of my own children.
One of the reasons why few people consider life insurance for their children is that it requires thinking about what parents dread most.
It goes without saying that no parent wants to think about the idea of their children passing before they do or having their child experience a life-altering illness. The thought is too painful to consider, so (understandably) people just put it out of their minds.
I for one freely admit that something happening to my kids is my greatest fear. I can safely assume that I would not show up for work on Monday, my income would suffer, my business would suffer — my whole life would be a disaster and my finances would be sure to follow.
I have long believed that having life insurance for my kids is a good idea and here are a few reasons why:
Life Insurance for Children?
- Life insurance protection. As I mentioned above, if the unthinkable were to happen, I do not want to take the risk of having the rest of my world crumble around me while I’m grieving. If I am capable of functioning and working productively, that’s great, but probably highly unlikely.
- Protection for life. While my children are young and healthy, insurance is reasonably easy to obtain and very affordable. In fact, parents can get a policy on their children with a guaranteed level of cost for life, which means your rate will never go up. How many insurance holders can say that?
- Guaranteed protection regardless of health. Many people cannot obtain life insurance as adults due to their health or lifestyle habits. Some factors that could impact the insurability of your children include: diseases that develop later in life, skydiving, and even travelling abroad. Having a policy set up at an early age can help eliminate this issue for your child and even allow them to purchase additional insurance as an adult, without being required to qualify.
- Build equity. Some insurance policies have an added bonus of cash values. These policies can be used for a variety of things, and if set up properly, can grow substantially over time. I have seen these policies used as a down payment for a house or a car, or to fund a wedding or even school tuition. What will my kids use it for? Who knows? I might not even tell them I have insurance for them, maybe I’ll just turn the policy over to them by changing the ownership at some point in the future. Oh, and did I mention that any money that accumulates in the plan becomes theirs with no tax implications?
Thinking about life insurance for your kids is something you may not want to do because of what it implies, but it's something you should consider doing as part of a complete financial plan. If you are interested in finding out more about this insurance concept, please get in touch with us at First Foundation.