You have a lot of financial choices to make for your family and one of the most important, early on, is about life insurance. In fact, there are two facets to consider. The first is to make sure you have adequate life insurance coverage for yourself and your spouse. Having this in place is a cornerstone to your family’s financial plan.
The second facet, however, is less common and that’s to evaluate whether you need to buy life insurance for your kids. You'll hear some financial advisors counselling that you should always buy life insurance for your children while others say it's almost always unnecessary. How can you decide what's the right choice for you?
Why should I consider life insurance for my child?
One of the best reasons to consider buying life insurance for your children is to lock in their "insurability" at a young age. If your child experiences health problems as they grow older, they may become uninsurable. While financial advisors say this is a "remote" possibility, if you know or suspect that there are health concerns in your family, this may be a sound financial choice.
Most child life insurance polices are permanent life insurance policies, which have a cash value that grows over the years. You can also use the policy to create a flexible asset you or your child can use later on in life.
What could my child's life insurance policy help to pay for?
A permanent life insurance policy with a cash value could help to pay for:
- Higher education: if you plan for your child to go beyond high school, they may need substantial funds for university and graduate programs.
- Buying a car.
- Putting a down payment on a home.
- Paying expenses for a "gap year" before university or college.
- Starting or expanding a business.
What are situations where a life insurance policy may not be necessary?
If you buy a life insurance policy for your child, carefully review fees and costs. If you're using the policy to build savings and financial security, the fees could exceed investment gains. Building savings or making other investments could provide a better return.
Similarly, if you're buying child life insurance because you think you may need money to pay for funeral costs in the tragic (and statistically unlikely) event your child dies, an emergency savings fund will serve this need more efficiently and effectively.
What factors should I consider when buying life insurance for my children?
Before you buy a life insurance policy for your child, take your family's entire financial needs and plans into consideration. Don't neglect adequate life insurance for yourself and your spouse first. The main purpose of life insurance is covering lost income or paying off debts (including mortgages) if you or your spouse dies. Even if your spouse doesn't work, they take care of your home and children. You may need to pay for childcare, moving expenses, and more essentials in the event of their death.
You may find that life insurance for your children fits into your overall financial plans after you've considered your entire financial picture. If so, compare life insurance quotes to find the policy that is right for your family.