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Life insurance for children

Read the Spanish version: Seguro de vida para los niños

Emotions run high when parents and grandparents plan for a child's future. If you plan to buy life insurance for your child, it's a good idea to step back from the sales pitches and consider the overall picture before you make a purchase decision.

child life insuranceInsurance agents often pitch "special opportunities" for you to add children to your policy — opportunities that agents claim arise only every few years. They apply pressure for you to make an immediate decision. Braun Mincher, an award-winning personal finance expert and author, says consumers should be wary of policies for children, especially ones with teaser life insurance rates of $1 a month.

"People don’t wake up and decide they suddenly have to buy life insurance," says Mincher. "Life insurance is a product that is sold and not bought. People usually buy it because an insurance agent or salesperson approached them and said they need this."

Life insurance is primarily designed to protect your dependents from financial disaster in the event of your death. But children don't have anyone relying on their income.

"The benefit is guaranteed insurability, so if your child is stricken later with a serious illness that would disqualify them for an insurance policy, they are already exempt from [being denied for] any pre-existing conditions," he says.

"It’s a nominal insurance that usually provides around $25,000 in coverage," says Mincher.

According to the National Funeral Directors Association, an advocacy group for the funeral services profession, the cost of a funeral for a child can vary, depending upon the funeral home. Even with a discount, the funeral could easily cost thousands of dollars. The average family may not have the money to pay for those expenses. That’s where life insurance can help. However, "statistically speaking, the mortality rate is so low for children that it's hard to justify this type of insurance. It is usually used as a way for agents to get in the door to sell you other types of insurance policies," says Mincher.

Many policies purchased on the lives of children have an option for the child to buy additional insurance when he or she comes of age. While there are cases where a child develops a chronic condition that would make them uninsurable later in life, the reality is that most young adults can easily obtain low cost life insurance.

Buy with your head, not your heart

There are other places to put your money that may make more long-term sense. For example, make sure that your child would be financially secure by buying sufficient life insurance in the event that something happened to you.

If you are worried about funeral expenses, you can buy term life insurance coverage for yourself with a small death benefit rider to cover children.

In addition, "a college-savings plan is one of the best investments you can make on your child because you receive compound interest tax-free," says Mincher.

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