Have you seen a flyer for life insurance for kids and felt totally turned-off? Many of us would feel the same way but surprisingly, life insurance for children can make sense.
This financial product is being promoted among grandparents and parents as a way to save money for children and to protect their qualification for insurance later.
When should someone buy a life insurance policy on a child? Before you consider doing so, financial experts recommend that you first make sure you have your own life insurance and disability insurance as well as adequate savings for your children’s education.
Read on to know more about the advantages of life insurance products for kids and how they can help shape their future.
Generally, people buy life insurance in order to reduce the risks from financial obligations. Since kids don’t have debts or obligations, why would they need life insurance?
Parents who want to teach children sound financial planning at an early age may want to purchase life insurance for them. Some life insurance policies can also help build cash value that can be used when they become adults.
There are two ways to buy life insurance for children.
You can purchase coverage for term life insurance for you or your spouse with a rider for your child for a smaller amount. There are no individual term policies for children.
Rates can be anywhere from $10 a month for $10,000 cover on all of your children.
These riders offer protection up to the time children become adults. They can then be converted to permanent life insurance.
Some experts say a term policy is useless because it only provides protection for short-term risks.
Universal life insurance policies can be valuable when bestowed on children, especially at an early age.
They can be for small amounts of cover such as $50,000 or more. While premiums are more expensive than term life, they offer lifetime protection and has savings component which can be a source of funds for the child in the future.
You can lock-in very low premiums for universal life insurance while saving for your child’s future. Universal life insurance policies have investment components wherein premiums paid monthly are topped with extra money that accumulates over time.
For an individual with a good cash flow and desiring to save money for a child, universal life insurance is ideal because it provides a tax-free shelter. If one would pay $110 monthly towards a $300,000 child insurance policy, around $60 goes into the savings part which can later be invested in GICs and are not taxed until the funds are withdrawn.
You can also consider whole life insurance which also has cash value just like universal life insurance but without the investment component.
Premiums for whole life insurance can also be paid in 2 ways – quick pay option wherein the policy will be fully paid in 15 to 20 years. This option is ideal for parents who want to give their child a policy that will have no more premium payments forever.
A second option is level for life premiums which means the premium remains the same for life.
Believe it or not, there are great reasons to buy universal life insurance for children, as outlined below.
Your child will enjoy life insurance protection for a lifetime locked-in at very low rates. Click here to find other ways to save on life insurance costs.
The cash value accumulated as part of the policy is tax-free
Once permanent life insurance is issued, it cannot be taken away. Your child will have lifetime cover regardless of his health status when he is older.
The cash value of the life insurance policy can be a great gift from a parent to his child. It can also be a great way to transfer wealth when done in consultation with financial planners.
Universal life insurance is generally unaffordable for most adults because the premiums are costly. Children, due to low risks and young age, will enjoy much lower premiums which can continue until they reach adulthood.
For individuals with good cash flow and looking for unique ways to invest money for their children, life insurance can be a good choice.
You need to look at the whole picture to make sure you are saving enough. It is best to get advice from a financial advisor, preferably one that does not make commissions on life insurance but rather provides professional financial advice.
As discussed in the article, life insurance for children can be good for certain circumstances. Not everyone needs it. However, it can work well for families that want to invest in life insurance for their child that builds wealth which can be tapped into later or to assure insurability in case the child develops medical conditions later in life.
Is it advisable to take out insurance on children? It is a personal decision. You can add a protection rider to your own policy or purchase an individual permanent policy for your child for the future.
As a parent or a grandparent, we want to provide a secure and stable future for our children. Life insurance can be a tool to be considered for investment or for making sure children already have insurance cover during their lifetime.
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