The Pros and Cons of Child Life Insurance

In today's world there are no assurances. Things can happen beyond your control and you are often left reeling and helpless. In matters of death, whether sudden or due to old age or illness, your primary hope is that you can leave behind enough for your family and loved ones. Keeping this in mind, life insurance is an excellent vehicle to save for your family’s future. But, while everyone knows that adults should have life insurance, is it a wise investment for your children? Do they even need life insurance in the first place?

Before getting in to the debate about whether it's a good idea to purchase life insurance for your children, you need to understand the difference between the two types of insurance on offer:

Types of Child Life Insurance –

Term Life insurance: The premiums on this type of insurance start off cheap and increase as you near the end of the term agreed upon. Term insurance implies that the premiums you pay are guaranteed for a specific term of say ten, fifteen, or even twenty years. The cash benefits will be made available only if your child dies within the term of the policy. The one plus point here is that this insurance is affordable and can often be converted to a permanent policy later on in life.

Permanent Life insurance: This type of insurance involves higher premiums for as long as you have the policy. These policies incorporate an insurance component as well as an investment component. Most plans of this type have a guaranteed insurability that means that the policy will be applicable even if your health changes or declines. You will also be able to withdraw the cash component after a certain amount of time but usually with fees and restrictions along with it. Your children can use the benefits as the investment component could provide for their education or other expenses. This insurance also stands as collateral for loans.

Keeping in mind the types available, what then are the pros and cons of life insurance for children?

1. The main reasoning behind life insurance is to cover the long term and immediate costs associated with a death. Unless your child has a flourishing acting or modeling career, it is rare for a family to be dependent on a child’s income. Therefore, in cases of children’s deaths, there is no need for income replacement. This leaves only the immediate cost of the funeral (which would be approximately $6,500). Many critics feel that the costs of the premiums add up to way more than this in the long run. Other experts however believe that you are increasing the security of your family with child life insurance. In the event of a tragedy occurring, insurance can help families pay for funeral expenses, counseling for parents after a child's death and much needed time off from work for the grieving parents. For this peace of mind, they believe that the minimal policy expense is worth it.
2. Many insurance plans are sold with the promise to ‘help your child save for the future.’ But, in actuality, the savings are often less than when compared to other types of investments such as bonds or mutual funds. Remember, you often have no control over the types and returns of whole life investments. And encashing your insurance benefits will entail conversion or redemption fees. It is therefore recommended that you look into other avenues as savings for your children. The problem arises when parents get so stuck with the dizzying array of options on offers such as stocks and mutual funds, etc. that many don’t invest anything at all. In such situations, it would have been wiser to invest something in your insurance plan versus nothing at all. Therefore, taking life insurance for your child is a wise choice in terms of saving for the future.
3. Many financial advisors recommend buying modest life insurance policies for your young children. This will ensure that they are covered even if they become ill or have difficulties getting life insurance later in life. This becomes very important if serious diseases run in your family. Purchasing a policy while the child is young and healthy can protect their future by fixing a more affordable rate when they are younger. To counter this claim, critics deny the fact that your children will have difficulty in obtaining a life insurance after they have grown up.

Ultimately, in a bid to keep your family safe, it pays to plan for the worst and plan for anything. At the end of the day, whether or not you will purchase a life insurance for your child is a subjective decision.

And if you do decide to insure your children, it then basically comes down to two options – if you can be practical enough to plan for your child’s death and are financially savvy enough to select the right investments in lieu of the cash component of a whole life policy, a term life insurance would be ideal for you. But for those who cannot deal with the implications of insuring their babies’ life or who lack the confidence of investing on their own can look into whole life insurance as an option instead. In order to discover what works best, you need take time to weigh all your alternatives. Compare the pros and cons and see if a particular plan works for your financial goals, your life style and you.