Nothing stirs up the emotions like the thought of something happening to your child(ren). My wife and I recently had our second child, and I know the first few weeks were filled with a range of emotions – what if something happens to me, or my wife, or, heaven forbid, my daughter?
The statistics say the odds are long, and it’s likely nothing will happen. And it probably won’t. But you never know. And it’s that thought that keeps parents awake at night.
So back to our question: Should you buy life insurance for your children?
The Experts Say Don’t Buy Life Insurance for Children
Many financial experts advise us to skip it. You don’t need it, they say, because children aren’t typically the income earners in your household. And this is true for the most part (unless you are the parent of a child model, actor or actress, etc., but that is a different situation altogether). Another reason many people say to avoid child life insurance is because he thought of “profiting” from the death of a child is immoral or macabre.
When you run the numbers, it’s easy to make a case for not buying life insurance for children, especially if you aren’t replacing any income. In fact, we recently listed life insurance for children as one of the policies you don’t need, and you don’t need it if you are buying it as income replacement or as an investment.
So now I have a confession to make: I have a life insurance policy on both of my daughters.
Why We Bought Life Insurance Policies for Our Children
Why would I do that when the experts tell you it isn’t necessary? There are a few reasons:
- Medical care is expensive
- Funerals are expensive
- Life insurance on children is cheap
- The policy we bought guarantees future insurability
- Peace of mind
Let’s look at these a little deeper.
Final medical expenses. I don’t know any parent who wouldn’t go to the ends of the earth to save their child. If something happens to my child I’m not going to ask the doctor how much a procedure costs before giving the OK. My only question will be whether or not my child has a better chance of survival. I can worry about trying to negotiate the medical bills later.
Do you have health insurance? Yeah, me too. But most insurance policies have deductibles, co-pays, and sometimes even exclusions or limits on what the insurance policy will pay. Our plan is a high deductible health care plan, which would put us on the hook for several thousand dollars should the worst happen. This, of course, doesn’t include any other associated costs.
A funeral will run you close to $10,000. Yes, you can have a cheaper funeral. The average cost of a funeral in the US was $6,500 in 2009 (most recent information). But these figures do not include the costs of the cemetery plot, headstone, or other charges such as flowers, obituaries, hosting family, etc. It is possible to have a less expensive funeral, but it is also possible for the expenses to run much higher than $10,000.
Children don’t cost much to insure. Statistically, children don’t die frequently and the value of their life insurance policies is small. That works in the favor of consumers. When I purchased my life insurance policy for myself, I was given the option of buying a rider to cover my children. I bought a life insurance policy for each of my children - I only pay $2 a month (each) for a $20,000 life insurance policy on each of them. You can go higher, but my wife got the same rider on her policy, so we are paying $4 a month (each) for $40,000 of life insurance coverage on each child.
Tips for finding affordable life insurance for children: You will find more affordable life insurance policies for your children if you combine policies, similar to what I mentioned above. Stick with term life insurance; if you want to buy your child an investment, buy a real investment, not life insurance. Some companies also offer combined children’s life insurance and college savings accounts. In general, the best plans are those which focus on one thing. Keep your insurance policies, investments, and college savings as separate accounts.
It guarantees future coverage. (disclaimer: read and understand your policy as they vary). The life insurance policies we got on our children assure they will be able to purchase a life insurance policy when they turn 18 and are no longer covered under my policy — and this assurance is in place regardless of whether or not they would otherwise qualify for life insurance. (For example, if they contracted an uninsurable disease or if something else happened which made them ineligible for a life insurance policy). This may or may not be the case for your policy, so be sure to read the fine print.
It gives you peace of mind. I love my children and I don’t want anything to happen to them. Anything. But I also understand that life is precious, and we cannot control everything. If something happens to my child(ren), I will do whatever it takes to help them survive, or even keep them comfortable in their final days or hours. Medical care is expensive. Funerals are expensive. Neither of those facts will change any time soon, and I am willing to spend a few dollars each month to help avoid a financial disaster down the road.
Sometimes You Should Ignore the Experts
I understand why some financial experts recommend avoiding life insurance policies for children. In many cases, they are correct. It doesn’t make sense to use life insurance as an income replacement for most children, and it almost never makes sense to use life insurance as an investment for kids.
But making a one-size-fits-all statement to not buy life insurance for kids is over-thinking things. Personal finance isn’t always about making the decision which is the most “technically correct.” It’s also about making the decisions that give you flexibility or peace of mind.
You don’t need a million dollar policy on your child – that’s too much. But a small policy is actually can be a financially prudent decision, and one that helps you sleep better at night.
To say it another way: I can easily afford to spend $4 per month. Could I easily afford to spend $40,000 in an emergency? That’s not quite as easy to do.