This is a question I hear all the time from readers who are parents – and it’s a question that comes up in our own household as well. Should our children have life insurance policies?
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I’ve done a lot of research and soul-searching on this topic. What follows are the conclusions I’ve come to on the issue. I hope these thoughts will help other parents make up their own minds on this difficult issue. I’m writing the things below with great care, because such concerns can be very, very emotional for parents (myself included).
The obvious and easy answer to the child life insurance question is no. Life insurance is usually purchased as either a salary replacement (so that a spouse or children aren’t left with an inability to maintain their standard of living) and/or a tool to pay for funeral expenses. In the case of a child, there is no salary to replace – and with the absence of a child, living expenses for the family actually drop, meaning it is possible for a family to cover funeral expenses.
Thus, from a straightforward analysis like this, life insurance for a child isn’t a strong financial choice.
But that’s not all there is to it.
The biggest issue is the possibility of illnesses developing late in childhood or in adulthood could prevent your child from being eligible for life insurance. I look at myself as an example of this. I was born with a highly underactive thyroid. My parents were able to get me a small life insurance policy as a child because they were very concerned with other illnesses springing up – and that policy still exists today.
There is also the smaller concern of the ability to pay for a child’s funeral and end-of-life expenses if that happens. For some families (ours included), there is adequate money in the emergency fund to pay such costs. For other familes, however, such funds aren’t easily available, for various reasons. That usually means debt.
There’s also the very small benefit that some policies function in a way that helps pay for college, but these are usually sub-par compared to a strong 529 college savings account. This is more of an “icing on the cake” type of thing rather than a primary feature.
What’s my conclusion? In the end, it comes down to your family’s financial state. If you’re in a good situation with a strong income, life insurance for your child can be a solid choice. However, it’s more important that your child receive other things first, such as steady nutrition, good health care, shelter, clean clothing, and perhaps other savings options for their future (like a well-funded 529).
In our case, we have small policies for each of our children, mostly for the “potential future illness” concerns stated above. My own concern about this may be somewhat inflated because of my own history, but it’s something Sarah and I both take seriously. It’s something we can easily afford and it’s something we know will have value for them no matter what happens in life. The insurance is not a strong bargain, but the monthly cost is very low.
If we were put into a choice between the insurance policy and other essential tools for caring for our children, the other areas would come first.
If you do decide to go the child insurance route, I strongly encourage you to shop around and take your time with the decision. Not all insurance houses are the same – there are big differences in price and coverage out there. I wouldn’t get a large policy, either – one that covers funeral expenses should be an adequate one. If you’re thinking about college, I’d suggest putting the rest of the money you might have spent on a policy into a 529 college savings account like the one we use at College Savings Iowa. That’s exactly what we’re doing.