Child Term Life vs Whole Life Insurance
Policy Options for Kids- What is Available and What Does It Cost?
Jul 5, 2009
No-one really wants to consider child life insurance, as it forces a parent to consider the possibility of his or her child dying – the thought alone is something most parents want to push right out of their minds.
However, unforeseen occurrences can happen to anyone, so it may be wise to consider what insurance options are available for children.
Reasons to Purchase Child Life Insurance
- The death of a child can carry financial losses such as funeral expenses which can be anywhere between $5,000 and $10,000.
- Additional expenses can include costs of bereavement counseling and financial help in the event that a parent needs extra time off work.
- Some parents use the benefits of child life insurance to establish memorials or foundations to help other children in need.
- Term life policies can be relatively inexpensive, around $10–$20 per month, depending on the amount of insurance cover taken out.
- Some term life insurance policies for children combine disability benefits, in the event that the child may lose a limb or an eye.
- Premium protection: Life insurance for kids can help them when they are older and wish to purchase their own life insurance, especially if there are genetic traits in the family that may preclude the child from obtaining life insurance in later years.
Child Term Life Insurance
- Term life insurance is temporary protection. Usually in the case of child life insurance, a term life policy would only be purchased to provide a death benefit to the parents or guardians to cover the child's burial expenses, term life insurance would therefore be the cheapest option available to buy for children.
- Some financial planners will advise parents that the money for child term life insurance could be better spent by saving the money or investing it a mutual fund. It should be remembered though, that insurance is protection against future losses incurred by death – term life is only a death benefit and nothing more. There is no investment or cash value in a term policy.
- John Sestina, a fee-only certified financial planner in Columbus, Ohio, and the author of the book 'Managing to be Wealthy' says the only kind of insurance he would recommend buying for children is term insurance- and if you're going to get it, get lots.
- Many companies will tack on a small amount of insurance to a parent's policy, essentially to cover burial costs.
Child Whole Life Insurance Policies
- Whole life insurance is typically purchased for children to provide both burial expenses as well as an investment opportunity for the child that will benefit them later on in life.
- Purchasing a whole life policy for a child while they are young is very inexpensive in comparison to them buying it later on in life. Cash value begins building the end of the third year that the policy is in force.
- Policies are a way to invest money on a tax-deferred basis.
Financial planners are divided on the issue of purchasing child insurance. Some feel that child whole life insurance policies are not a great investment and there are better options available, such as 529 plans and education polices that do not include life insurance premiums.
Other financial planners argue that parents just feel better having insurance in place, and feel that if their child passes away and they are devastated with grief, $100,000 would serve to cushion the blow.
On one topic, it seems, all financial experts are agreed- parents need to be adequately covered themselves before considering buying a child life insurance policy.
Source:
"Life Insurance; What it is, how Much to Buy" - Allison Bisbey Colter
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