Considering life insurance for your children? There’s a number of specific insurance-related reasons why you should consider insuring your children at a young age.
1) Guaranteeing future insurability
Purchasing a life insurance policy on your children when they’re young guarantees that if they become uninsurable in the future that they always have coverage. Once the policy is in force, it can’t be terminated by the insurance company no matter what happens to your children’s health or insurability in the future. When the time comes that your children do need life insurance, they’ll already have a policy no matter what changes they’ve experienced to their health.
2) Insuring your income
An often repeated, but incorrect, myth is that children don’t need life insurance because they don’t have an income. In reality, you’re insuring YOUR income not your child’s. In the event of the premature death of a child most parents are off work without income for an extended period of time (it could be months or years, and in some cases, forever). Life insurance policies on your children provide you the ability to grieve without a deadline to go back to work.
3) Lock in premiums for their life
By purchasing a life insurance policy on your children at a young age, you can lock in and guarantee their life insurance costs for their entire life.
4) As a financial gift and lesson
Showing your children the importance of life insurance and other financial vehicles at a younger age can help them develop healthy financial habits that last the rest of their life. It’s also a way of showing your children that you care for them, by gifting them a life insurance policy when then get older. (this is less of an insurance reason and more of a personal reason).
With children’s life insurance we are generally looking at life insurance intended to last a lifetime. This suggests some variation of permanent life insurance policy is suitable (as opposed to term life insurance).
We recommend considering two types of life insurance for children. The first is a Term to 100 type policy (or Universal Life Insurance with Term to 100 insurance costs). These policies have guaranteed level premiums and coverage for life and are an inexpensive way to lock in and guarantee life insurance for your children.
The second type of life insurance policy that is suitable is a whole life insurance policy with Paid Up Additions. These types of policies have level premiums and coverage for life. However the paid up additions option provides ongoing increases in coverage over their lifetime, helping the coverage amount stay in line with inflation.
A further variation on these types of policies are paid up, or quick pay policies. You can fully pay up a children’s life insurance policy in 10 or 20 years, so that when they’re older you can gift them the life insurance policy that no longer has any premiums do. This is perhaps more of a personal choice again, and has less to do with insurance principles.
There are two things to be cautious of when purchasing a life insurance. First you should focus on the insurance coverage and the premiums, not investments. Generally speaking, investments on these types of policies are either not appropriate, not guaranteed, or better options investment options exists outside of life insurance.
Secondly, if your intention is to gift the life insurance policy to your children when they’re older, you should wait until they’re of an age where they value the insurance more than the value of any investments. Children gifted life insurance policies at an earlier age will often ‘cash in’ these policies for any cash values because they value the amount of the cash value more than they do the life insurance. We’ve often seen cases where people are 40 years old and expressing their wish that they still had their dirt cheap life insurance policy that their parents had bought them when they were young, instead of cashing it in to buy their first car (or perhaps, just beer).
If you’re interested in life insurance for your children, please fill out the following form and we’ll contact you to discuss available options.