I have met many clients who never thought about getting life insurance for their children until their children were diagnosed with diseases like diabetes, thyroid, epilepsy, Crone’s, cancer and syndromes like autism or Asperger’s, and often it’s too late.
Insuring children at a young age is crucial in this day in age, because it’s becoming more common for children to be taking medication due to a health situation. As soon as that happens, getting life insurance as an adult is suddenly near impossible.
Insuring children at a young age is crucial in this day in age, because it’s becoming more common for children to be taking medication due to a health situation.
When a child is diagnosed with these conditions at an early age it means they’ll likely have it their entire lives. When underwriters look at an application for a child that started medication like Ritalin at age 3 for focus problems, it’s very unlikely they’ll be willing to offer coverage to the child.
It’s an entirely different situation if the diagnosis is not until age 20.
If diabetes is diagnosed before age 40, it can be near impossible to get life insurance, and if you can find it, it’s going to be rated (increased cost) significantly. So a policy that might cost $20 a month for a healthy young adult might have a premium of $120 a month.
With this landscape, many parents see the need of getting life insurance for their children. There are many reasons this is a wise and necessary decision.
Life insurance for healthy children is incredibly affordable. If you bought a policy for your child at age 2, and at age 25 they develop an illness, their rate will not increase (assuming it’s a whole life policy) no matter how severe the illness.
Once the policy is issued, it’s permanent, and the rates are guaranteed never to increase, and coverage guaranteed never to be cancelled as long as the premiums are paid.
If you’re still not convinced that future insurability is important, ask any parent at St. Jude’s if they think children should have life insurance.
They look to you to protect them
Builds cash value
I like to look at cash value as an emergency fund, not an investment fund. Not only do your premiums keep valuable life insurance in force, they allow you to save money with interest.
This is great for people who have difficulty saving, and useful for children who have a need for cash as adults, such as for college tuition or emergency/unexpected expenses to avoid going into debt.
Cash value growth is guaranteed by the insurance company, who keep their cash reserves in solid, sensible investments like Treasure bills and bonds.
However, the downside is that the face value of the policy decreases by whatever amount is withdrawn from the cash.
Accidental death or illness-related death
No one ever want’s to think about their child dying, but unfortunately sometimes it does happen. Most of the time it’s from accidents, but occasionally it’s illness-related. No matter the cause, it’s devastating on families. In a time of painful loss, many families lack the financial means to even bury a child, which can cost upwards of $15,000, if no medical expenses have to be paid first.
“The next thing her parents know they’re getting the most dreadful call imaginable. All it takes is a split second for everything to change.”
A woman I went to high school with was an all around super star. She excelled in athletics, was enrolled in several AP and honors courses, and getting excellent grades. Her future was nothing but bright, and ripe for the picking. She was also dating one of my best friends. She learned to drive at 16 and her parents bought her an older Volvo wagon, because it’s an extremely well built and safe car. One afternoon, she was headed back to campus with a friend in the passenger seat when she turned left onto a busy two lane road. Her lack of experience driving made her underestimate the speed and stopping time of a dump truck headed her way.
In a fraction of a second, the truck hit her side of the vehicle and totaled it. The passenger survived with severe injuries. Unfortunately, she died on impact.
All she was doing was going back to campus for afternoon activities, and the next thing her parents know they’re getting the most dreadful call imaginable.
All it takes is a split second for everything to change.
Final expenses and parental bereavement time off
No parent ever recovers from the loss of their child, no matter the age. What most people don’t realize is how much expensive a funeral costs. When they’re beside themselves trying to face the loss of their beloved, the funeral home is asking for tens of thousands of dollars right now to put their child into the ground.
Covering your child with life insurance is necessary with the costs of funeral expenses so high, and rising faster than inflation each year. This ensures their final expenses will be paid for at any age, no matter their health situation.
In a time of painful loss, many families lack the financial means to even bury a child, which can cost upwards of $15,000.
Another situation that doesn’t occur to many parents is that during a time of bereavement, they often find the need to take time off work. However, most people cannot afford to do this because their job does not offer any paid time off, or don’t have any savings, or both!
With a policy on the life of your child, whatever’s left after final expenses have been paid can be used for living expenses while taking time off using FMLA.
The proceeds of a life insurance policy on a child gives your family a financial buffer to focus on honoring and healing.
How do I get a life insurance policy on my child?
Most insurance companies will ask how much life insurance is on the parents and other siblings. It is fishy when a parent insures a child, but not him or herself, and none of the other children.
You and your spouse will need to get life insurance policies of your own, which equal or exceed the face value of the policy you want for your child. Eg, You should have $50,000 or more on yourself before an insurance company will issue a $50,000 on your child. Also, all children must be insured equally.
Once you’re covered, apply for all children at the same time.
What options do my kids have for life insurance?
First, you can get a whole life policy. I recommend whole life policies of at least $50,000 on children, because small face value policies will lose purchasing power as inflation continues to climb.
Today, a $50,000 policy on a 2 year old child is less than $20 a month. By contrast, a $50,000 policy on a 30 year old is almost $50 a month. It’s a worthwhile investment at a young age.
Second, you can consider “Term Til Age 70” child’s policy for less than $10 a month. It does not build cash value like the others, but the monthly premium is a fraction of what you would pay for whole life, and your child gets a level death benefit (will never decrease) until age 70, as well as a lower premium.
This is an affordable and sensible option if you are saving for your child through other vehicles.
Third, there is a modified whole life type of policy which offers a permanent life insurance policy in which the premium is reduced in year 2 and onward, and a chunk of your monthly payment goes into a cash accumulation account, like an annuity.
This is in addition to the cash value that builds up in the whole life policy. It’s perfect for people who want to save money for a long term goal, like a first home purchase or retirement.
If you’d like more information about children’s insurance, get a quote or to receive a brochure by email, please contact us.