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Life insurance is a key component of any long-term family planning. The nature of the unexpected is such that you cannot foresee it. The nature of family is to look out for one another, planning ahead for the day when you cannot do so. Upon marriage and having children, it’s common to take out a life insurance policy for yourself to cover expenses and ensure the financial stability of those you leave behind.
However, when it comes to life insurance for children, the emotional ramifications make it an extremely nuanced decision. The tragic loss of a child is unthinkable, too difficult to consider, for many parents. As a result, life insurance for children is not often considered, though it is available. Such insurance is meant to cover the cost of funerary expenses and enable you to afford the time to heal, so you may be strong for those still in your care.
Typically, life insurance is not a consideration for children, largely because they are not relied upon for income. However, there are exceptions to this rule, where it does make logical sense to purchase whole life insurance for the child. These policies are drastically costlier than term life insurance and mature with your child into adulthood.
With the increasing prevalence of genetic profiling, and the ever-evolving actuarial science of insurance adjustment, it’s worth considering if your child is predisposed to an illness. While an immediate presentation of an illness, such as congenital heart failure, may preclude insurance access, other issues may only appear with time.
Consider hemophilia, for example. The child could live a perfectly sustainable life, though when they reach adulthood, it would be difficult for them to get insurance as an adult. Term insurance would be off the table, or the adult child would be priced-out. However, whole life insurance carries with them, meaning they can overtake the coverage once reaching the age of majority.
Buying life insurance for your child means purchasing an insurance plan to cover the costs associated with the death of the child. Though it has negative connotations, the idea behind this insurance is not to profit the parent in any way, rather it is to offer the child a lifetime asset. Permanent, or whole, life insurance carries with you so long as the premium is paid.
There is a benefit amount, the money issued to beneficiaries after death of the insured, but there is another aspect to the premiums paid. The amounts parents pay towards the insurance policy build value in said policy. Using a tax-deferred structure, the cash value grows over time. Eventually, in adulthood, the insured party can use this collateral against a policy loan. It can mature into a part of the child’s investment portfolio.
Some policies make dividend payments after time, meaning that, over time, the dividends can cover the cost of the premiums themselves.
The life insurance policy, if it is paid out to you as the beneficiary, covers two main things. Provided the premiums are paid without default prior to the death, you receive the full value of the life insurance. The amount first is meant to address funerary expenses, which often exceed $10,000.
Additionally, the money is meant to enable you to take time off work to grieve. Especially with factors such as mortgages, car payments, and credit, losing income can lead to a cascade of tragedies. The loss of a child is an incomparably tragic incident, but often there are more dependents than one. When there are more children in the family who require care, the insurance ensures that you can support them financially while you begin the path of healing.
The optimal situation is that the insurance converts into an asset for your child in adulthood. The child can take over the premiums; or, if it is paid out, simply change the beneficiaries to their children.
While life insurance policies taken out against children cost far less than those taken as an adult, there are still several factors that play into the cost. The low price is associated with a lack of health history. Some plans even let you lock the premium in place for the entire duration of the policy.
The first aspect that impacts your premiums is the amount of purchased coverage. A plan worth $20,000 will cost far less than one for $100,000 or more. The next aspect is the payment schedule for which you opt. If you pay the plan out through the age of the child’s retirement, the premium will naturally be lower.
Many companies offer an option to payout the policy within a set of years, typically ten or 20 years. It will cost more, but the policy is paid in full by the time the child reaches adulthood. This is the more common approach, as it ensures an asset for the child entering the adult world.
There are a large series of advantages to purchasing insurance for your child, particularly when the policy is taken out soon after they are born. Among the benefits are:
All insurance is a matter of risk management, meaning the weighing of pros and cons of the plan. Life insurance for children is not without drawbacks, including:
There is a time and a place for everything, including life insurance policies for children. One common situation is for a child that has a health issue that will grow worse with age. The health concern will make it far more challenging for them to access insurance as an adult.
For example: The child has a kidney issue that will worsen as they age. It may not be life-threatening, but it can make insurance much harder to get.
Another common reason is if family history indicates that the child will likely incur a health issue early in life. Such issues can be financially straining and result in a serious loss of income while fighting for the child’s life. The insurance can help the family recover after losing a child.
For example: The family has a history of cystic fibrosis, and the child is genetically susceptible to this issue. Getting insurance early ensures that they can have coverage for a reasonable rate.
Finally, there are situations where families rely upon children for income. This is a tricky subject since it is the children who should rely on their parents for money. There are child labour and exploitation laws specifically precluding using children as a source of income. However, it does not always represent the full truth.
For example: A child wishes to become a YouTube sensation and is successful. The parent leaves their job to support the child full-time, receiving a managerial fee for services rendered.
There are few situations where getting life insurance for your child makes sense, but if they apply to you, it is important to do your research on providers. Identify your priorities. Is the goal to give your child a lasting asset? Be sure to find a limited-pay policy, though it is likely better to invest in a high-yield savings account, or put the money into an RESP.
Insurance is important, but its primary objective is to cover the equivalent loss of life in monetary means. Children aren’t breadwinners, so the loss cannot equivocate in such a manner. However, it can cover the short-term price of grief while you begin the road to recovery in order to be there for those under your care. If you’re getting insurance because health issues are likely due to genetic or environmental concerns, be sure to thoroughly check the underwriting of the plan.
Regardless of the reason behind pursuing the life insurance plan, doing your research on the provider and plan is essential to finding the right solution for your family.
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