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Life Insurance for Children: Should You Buy?

Should I purchase a life cover for my son/daughter? It is a common question many parents struggle to answer. Securing the future of your child is crucial, yet the financial implication on an unstable family is a factor we cannot overlook.

Reasons for buying life insurance on your child

Should I buy it or not? Well, don’t purchase a policy because of attractive pitches. Look at both sides of the coin.

1. Life insurance as a mode of savings

The principal merit of life cover is that you can borrow against the cash value that grows over time. Also, you can give in the policy for cash; you’ll only be charged a reasonable surrender fee.

Remember, your cash value is not taxed. However, when you surrender the policy or withdraw money (if it exceeds the policy premiums), it will be taxed. You can spend the returns as you wish.

Financial advisors caution against fees charged on life insurance. If you feel uncomfortable with the deductions, you may consider other ways of investing.

 2. To compensate for possible funeral costs.

Life insurance on a child could be beneficial in case the child dies. The lumpsum payout goes a long way to settle medical bills, funeral expenses, and family counseling. Otherwise, these abrupt costs negatively impact on a family’s financial status.

On the flip side, the statistics point out a very low probability of a child’s death. Alternatively, your money could be more useful if you stash it in an emergency kitty.

 3. Consider the child’s future coverage. 

Most parents buy life insurance on their kids to guarantee coverage against an intervening medical condition. The demerit of this first cover is that it limits the amount of protection that the child can purchase later, after growing up.

How does a child’s life insurance work?

The standard child life insurance policy is a Whole-life Cover. It entails a savings account known as cash value, which grows gradually with time. When the child reaches adulthood, the parent transfers ownership of the policy. 

 What factors should I consider before I buy life insurance for kids? 

Insurance does not cover everything. It is essential to understand the scope of different policies offered and make an informed decision.

Financial status. Have you first catered for more significant risks? Will the cover be sustainable to avoid losing your money? With these queries answered, go ahead.

Expert advice. Financial planners will guide you with great insights on insurance. Make sure the advisor doesn’t earn insurance commissions.

Final Thoughts

While some financial advisors caution against a child’s life policy, the insurance firms tout for the need to obtain the same. Consider the effect of the policy on your finances and choose accordingly.

Updated on March 29, 2020

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