It’s a thought that most people flat out do not like to think of. The idea of purchasing a life insurance policy on your children is a difficult though. Who wants to think of the idea that their child is going to die? No one. It’s time to think of this in a different way… There are different ways that life insurance on a child can provide value in the future, even without the death benefit paying out. Let’s consider a couple ways.
Most policies for kids are permanent life insurance policies which contain cash value. This means that there will be money available to the policy owner in the future. The cash value in a life insurance policy is available to be borrowed against in the form of a loan or it can be accessed by partial surrenders if there is a time when it is needed. Do not misunderstand this as advocating life insurance as a way for your children’s education. If that is the goal, then use RESP’s (Registered Education Savings Plans) as the main point of cash value life insurance is that it can make cash available when it is needed. Beware as there are life insurance agents who will push large life insurance policies for children to replace RESP’s. This is typically done so they can earn a higher commission. In regards to taking a loan against the policy, you don’t have to apply for a loan and have credit checks done when borrowing from a life insurance policy. It is definitely going to be there, just simply fill in the application and the money will be sent to you.
Cash value is a nice added benefit, but in my opinion the biggest reason to get life insurance for your child is that it can ensure future insurability. Many life insurance policies for children have the option to add a “guaranteed insurability rider” to the policy. What this means is that at specific times in the future, the insurance company will be required to issue additional life insurance coverage at standard rates for the child, regardless of the childs health situation. The only question that gets asked is if the child is a smoker or not (there are standard smoker and non-smoker rates). Other than that question, nothing else is asked. No health or lifestyle questions.
Changes in health as we get older are pretty self-explanatory. Obviously no one thinks that their child will be the one diagnosed with cancer at age 28 or become diabetic as a teenager. Having this type of rider on a policy makes it so that your childs health does not matter as the option to purchase more coverage is guaranteed.
What people don’t always think about is the “lifestyle” side of things. What if your child is a skydiver? A racecar driver? A pilot? There are many things besides your health that can influence your ability to get life insurance. A childhood policy with guaranteed rider eliminates that difficulty.
The final thing to consider is that your child will always have that original policy. As long as the premiums are paid that policy stays in force regardless of what happens in the future. Again, changes in health, risky occupations or hobbies don’t matter. Changes to existing coverage can’t be made by the insurer. By insuring a child you have ensured that they will be always have some coverage.