Is Getting Life Insurance for your Children Prudent or Prudish?
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Nora Dunn At some point in your parenting adventure, you may be introduced to the concept of getting life insurance for your children. There are a number of reasons why you might want to insure the life of your child, and about as many other reasons not to. Here is an analysis:
Reasons You Might Want to Insure Your Child
- Getting permanent insurance for them while they are young is cheap, and guarantees their insurability for life (as long as they never cancel the policy), despite potential medical complications that arise over time. For more information on permanent insurance policies for children, check out this resource.
- Getting temporary (term) insurance also provides a guarantee of insurability until your child reaches their 60s or 70s, however at each term renewal (typically 10 years), the price will increase dramatically. There is no benefit to staying with a Term policy at renewal if your child is in good health, and in fact – common practice dictates that applying for a new Term policy altogether at renewal is usually cheaper than renewing.
- You may want to provide some financial protection for yourself should your child die unexpectedly prior to reaching the age of maturity. There will be a cost to arranging for funerals and such, and depending on the situation, there may also be exorbitant medical bills to contend with.
But…
Although I believe in insurance, I also believe it is possible to have too much (and the wrong kind of) insurance. Life insurance for a child is very inexpensive. But before wantonly buying any insurance policy, ask yourself the following questions:
- What sort of financial duress would I experience if my child dies?
- What would the immediate expenses be?
- What would the longer-term expenses be?
- If I am not medically insured, what would the cost be if my child has a terminal illness?
- If the situation above exists, how would I cover these medical expenses if my child lives?
I believe you will find that upon consideration, the only financial duress you would experience if you lost your child would take the form of:
- funeral and burial expenses
- lost wages due to emotional trauma
The medical expenses would ideally be covered off with separate medical insurance, since an illness we live through can be just as expensive – if not more so – than a terminal illness. So I think it is safe to assume that getting life insurance for your child as an alternative to medical insurance is unwise.
However, you may also notice that other financial burdens would be lifted. You would no longer have to cover school and clothing expenses, extra curricular activities, or save for post-secondary education.
As callous as it sounds, kids are expensive. Rarely will parents lose money when they lose a child. So if your primary motivation for getting insurance for your child is to protect your own finances, I would like to suggest that losing a child – as emotionally traumatic as it may be – may not be as financially crippling as you might think.
However if you want to get life insurance for your children to provide them with a nest egg, or a guarantee of inexpensive insurability as they age, then considering a permanent policy in the name of your child might be an investment.
You are the parent. It’s all up to you.
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My wife's best friend would be in a world of finanical hurt right now were it not for having life insurance as a child. She has been diagnosed with clinical depression, a thyroid disease, and a number of other things that would have made here uninsurable. Due my wife's own clinical depression and fibromyalgia she has been deem "inelligible" for long-term care insurance. Something she will definitely need in the later years of her life.
Get the insurance. It's a rotten thing to think about, but do it.
I remember the discussion with our insurance agent, and he brought up the option. My wife & I decided that we didn't want to think about the idea, and declined, thinking that we might consider it later.
Two years later, my son (our only child) was diagnosed with an inoperable brain tumor. He passed on this last February after an 11-month fight. I'm thankful for the kind donations from family, friends and strangers, so that we could afford the medical and funeral expenses. However, you can't expect such outpourings of kindness. If people had not been so generous, then we would be in mourning and in debt.
I also wish that I had the financial freedom to take some time off. Once again, I had an extremely generous manager who made it possible for me to be home when it counted, but such generosity is not guaranteed in life.
There are other expenses that we would never have thought about. We have decided to stay in our home, but we would like to redecorate parts of it to try to avoid heartache. We would like to be able to be generous to others out of gratitude for what we have received. I would like for my wife to be able to stay home longer, instead of having to find a job in the middle of grieving.
Nothing can replace having my son with me. And, getting life insurance for children is not putting a price tag on their lives. It's a way to provide for yourself and your family during an awful season of life.
The death of a child creates a huge emotional loss, but in most instances is not a large financial loss. Let's face it. Kids don't create income they consume it. If you have proper health insurance, then the financial burden of their death should pretty much be isolated to some funeral expenses.
As for establishing their insurability so you can pass that on to them later, I would recommend estimating what those premiums would accumulate to if you invested them for 18 or 21 years in 529 college plan or a Roth IRA. Make sure that the death benefit you are passing on to them is substantially larger than the investment growth you could achieve without the policy. Which would be a better thing to give to your child on his 21st birthday. A $100,000 death benefit whole life policy with $5,000 of cash value that he can start paying the premiums on or a Roth IRA with $30,000 that he can use or continue to grow to he retires.
I'm very grateful for the death benefit policy my parents bought for me when I was a toddler. I guess I don't know what the return on the $2000 they paid back in 1975 would be by now, but I do know that I have relied on that policy
1) to take out a low-interest loan to cover half of my last year of college
and
2) to cover me while I was a stay at home mom. We would have had to buy term insurance for me, otherwise, and given the near-death experience giving birth was for me, I'm sure it would have been expensive.
can be a larger expense than many people can afford. Some online sources say the average funeral costs $7300; with the U.S. savings rate now just barely reaching into the positive percentages, many people don't even have $1000 in the bank. Add the costs of travel, unpaid medical costs (more and more people have high-deductible plans; we, for instance, have a $7200 deductible and not quite that much saved yet in our HSA), and the need to get therapy or take time off from work, and I think it is well worth it to spend $80 a year to have $15,000 of life insurance for my child.
In addition, while parents would not have future expenses, in some cases they would still have costs for a while. Many schools and camps contractually obligate parents to pay the full bill after a certain point. They might waive that requirement in the event of a child's death, but how terrible to be in debt for thousands of dollars to a school your child is no longer around to attend.
Tom, I am so sorry for your loss.
The purpose of any insurance is to avoid unbearable financial loss (not unbearable emotional loss), not to cover every possible expense. What will be unbearable financial loss depends on how close to the edge you are living. As "Cheap Like Me" above said, some folks do not have enough savings to cover funeral expenses or 6 months of lost wages. If you do have that much in savings, you'd be better off putting it to other uses.
BTW, friends and family *always* help out in such situations to the extent that they are able. Even my broke grad school friends chipped in to help my classmate pay funeral expenses for a loved one.
Some employers offer free or very inexpensive ($2/month) children's life insurance with a relatively small pay-out ($10,000) when the parent gets employer-sponsored life insurance. There's no reason (other than squeamishness) not to sign up for such a policy. But usually it's just a waste if it's tacked on to a private policy.
One more thing: your title is misleading. You're not debating "Getting Life Insurance for your Children". You're debating getting life insurance *on* your children. Sorry if that sounds harsh. But keep it in mind, because unlike your own life insurance (taken out on your own life), your child will not benefit from this policy. (I'm assuming term here. Whole-life is a different story, although it's not a good investment for most people.)
I recommend that every parent get some form, whether term or permanent, of life insurance for each child. In addition to covering any final expenses and medical care if there is any, you will want and need time off. I once spoke with a man who had lost his son in a tragic accident. He worked as a salesman so his performance directly affected his pay. He said that there were days however that once he was at work, he couldn't do anything but stare out the window all day thinking about his son and feeling sorrowful. Fortunately, they had life insurance on his son, so he could take those important days and just mourn.
So again, I believe life insurance, even on our children, play an important role in the mourning process as it allows us the time and financial ability to mourn.
Thank you for the comments, and some great points have been made.
The emotional trauma of losing a child can be quite costly if extensive time must be taken off work and no concessions are made by the employer.
If it eliminates stress, then it may well be worth the cost, and if you choose a permanent policy it has the added benefit of guaranteeing your child's insurability as they grow up.
Going with a small benefit through a company work plan is another way to go, but will do nothing to guarantee your child's insurability as time goes on. It would simply be a mechanism to protect your own finances if you lose a child, and is one of the least expensive (and least flexible) options you can choose.
I also must agree with some of the commenters who suggest that having children is costly. In fact, it might be a good exercise to calculate just how much your child costs...purely as a way to do a cost/benefit analysis for life insurance. As an example, if you realize that you spend $20,000/year (after tax) on your child, then maybe you don't need the coverage and could still justify taking time off work to mourn properly.
This will be different for everybody. Thank you for your thoughtful comments. This is a tough topic.
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