We spend so much time discussing why adults need life insurance (income protection, burial costs, and so on) that it’s easy to overlook why you should consider insuring your children as well.
When we think about it, we reason that our children aren’t contributing to the household budget—in fact, anyone with children knows that raising them depletes the household budget significantly! However, purchasing a permanent life insurance policy for a child can provide them with financial benefits later in life (in addition to the death benefit).
So, before you get caught up in internet debates about how to get your baby to sleep or what sort of diapers to use (or if you’ve already gone through that and are dreading the next round of parenting debates), here are five things you should know about purchasing life insurance for your child:
Life insurance plans “age.” A fantastic reason to invest in juvenile life insurance is to ensure that your children are covered from the start, and as they grow older, they may be able to take advantage of riders that allow them to expand their coverage at a guaranteed rate regardless of their health. People’s health, including children’s, changes, and having a policy in place may ensure they get the coverage they require regardless of their health.
It establishes a sound foundation: While there are tax-advantaged vehicles for saving for retirement and college, this is not always the case for other large expenses that young individuals confront, such as car down payments, weddings, and first house purchases. The cash value of a policy can be borrowed against for these expenses, with the caveat that it reduces or cancels the death benefit if not repaid.
Not certain about obtaining them their own policy? Include them in yours. Check to see if there are any easily affordable riders on your own life insurance policy that will cover the kids.
Don’t buy the first policy that comes into your mailbox: The same marketing clearinghouses that ensure you receive weekly updates on your pregnancy also make your contact information available to life insurance companies. Before committing to a policy, make sure to check pricing and consult with an insurance specialist or advisor who can assist you comprehend the options.
There is a safety net. We all want our children to grow up happy, healthy, and powerful. However, if the worst happens, as it did for the Koonsman family (you can hear their tale here), juvenile life insurance can provide a buffer—covering burial expenses, yes, but also allowing parents to take time off, care for their other children, and enable everyone to grieve as needed. And, as the Koonsmans’ tale demonstrates, they were also able to honor their daughter Hope’s memory by establishing a scholarship in her honor.
What Life Insurance Isn’t
Do you have questions regarding life insurance? I can’t say I blame you. My grasp of life insurance was poor when I first began writing about finances more than a decade ago.
I was aware of life insurance because it was provided by my job, and I felt a $50,000 coverage was a large sum of money. I also recognized the names of insurance companies from late-night television advertising and the occasional piece of junk mail.
I thought “insurance” was something you had to have for your car, your house, and your health. The “life” portion was a large, hazy blob of “other.” If that’s how you’re feeling, here are a few pointers to help you focus—by knowing the “nots.”
Workplace life insurance is usually insufficient.
Since learning this myself a few years ago, I’ve found that many people never look beyond the life insurance provided by their employer. Workplace policies are a nice benefit to have, but they are usually limited to one or two times your income or a predetermined amount, such as $50,000. Furthermore, the coverage usually stops when you leave the company.
How far will that go when you consider what’s left behind for your loved ones: the loss of your income and, more than likely, debts and bills? What about rent or mortgage payments, child care, and education expenses?
A Life Insurance Needs Calculator from a neutral source, such as www.lifehappens.org/howmuch, is an easy method to get a rough sense of how much life insurance you need.
Life insurance is NOT a frill.
Many people have never considered purchasing life insurance because they believe it is a luxury. According to a recent Life Happens and LIMRA study, consumers believed the cost of a 20-year, $250,000 basic term life insurance policy for a healthy 30-year-old was three times greater than it is. Younger people, in particular, significantly overestimate the cost of a term policy.
What would you say if you had to guess how much the aforesaid policy would cost? That policy will cost you around $13 per month. Certainly not a luxury—most of us spend more on a meal out than that.
Life insurance isn’t just for funeral expenditures.
While funeral expenses are significant and a big reason individuals get life insurance, it does so much more. If you die, life insurance payouts can assist replace lost income, pay off a mortgage, assure a college fund, or protect a retirement nest egg.
The proceeds of a life insurance policy are normally tax-free and can be used for anything your loved ones require now and in the future. Isn’t it amazing?
Life insurance isn’t just for the super-fit.
Life insurance is less expensive as you are younger and healthier, so don’t dismiss it simply because you’re not in Ironman shape!
Many people avoid purchasing life insurance because they believe they will not qualify. However, when certain medical disorders, such as diabetes or high blood pressure, are under control with the help of a doctor or medication, it is often possible to qualify. You may even be able to obtain coverage following a heart attack. Just keep in mind that if you are concerned about a health issue and qualifying for coverage, it is generally best to work with an experienced insurance agent.
If you’re feeling overwhelmed by all of this information and don’t know where to begin, remember that a life insurance agent will meet with you at no cost to discuss your needs and help you choose life insurance coverage that fits your budget. If you don’t already have an agent or advisor, click here for advice on how to locate one. You can also use the Agent Locator to discover an agent in your region.
Remember, the proper agent or advisor can help you make sense of the chaos and get you on track for the financial future you desire—complete with the security your loved ones want.