Does your child need life insurance?
Buying life insurance for children is not uncommon. But, is that even practical?
Dilshad Billimoria, certified financial, Director, Dilzer Consultants, said, child Insurance is the worst investment a parent can make for their children.
The objective of Insurance is for protection and income replacement when the main income-earning member dies. Hence, it is an essential requirement for every earning individual. Since your child does not have any income it is a futile expense.
By Insuring a child- (education plans and child insurance plans) what is the point?! Should anything happen to the child- parents will receive the monies- What is the end objective in that? Not a good option at all!” Billimoria adds.
Then why do people buy life insurance for children?
Most parents buy a child policy assuming that it would be a great investment for their future goals like higher education or marriage. However, you can’t be more wrong about this. Let’s do the math to understand it better.
Life insurance policies with a return benefit provide an interest rate of 3 to 4%. Now, if you buy a child policy for 15 years for an annual premium of ₹24,000, then at the end of the tenure you will get ₹4 lakh.
Meanwhile, if you invest the same amount in an investment product that gives you a 7% return, then at the end of 15 years you will get a corpus of ₹6.5 lakh.
It is important to understand that insurance and investments are two different things with two different objectives. Mixing them does not solve any purpose.
Adding to what Bilimoria said, Shweta Jain, certified financial planner, founder, Investography & author, My Conversations with Money, expressed, in fact, it is the parents who should get a good life insurance coverage once the child is born so that in case anything were to happen to the parent, the child’s goals are protected.
However, when it comes to health insurance, Jain pointed out, “Your child definitely needs to be included in your health insurance policy. Your child can fall sick and might need hospitalization.”
Even in the case of accidents, this is necessary. It is essential to ensure that all family members are covered adequately, Jain concludes.
Child Life Insurance Pros
The insurance process may seem complex with the variety of products and buying process, but life insurance for a child can be worth it.
Final Expense Coverage
In the event of death, a final expense payout can help cover a child’s funeral, possibly fund family grief counseling & help supplement income for the parents’ time away from work.
Juveniles Are Easily Insurable
Adults who buy life insurance have to consider their health, health history, family health history & lifestyle habits. On the other hand, the majority of newborns & children are the youngest & healthiest they’ll ever be in their life, therefore they are easier to insure.
Policies Can Be Inexpensive
Not only are children easier to insure, they can also lock in the lowest premiums rates on the market. Most companies lock in a child’s premium rate.
The child’s premium likely won’t increase with age & health overtime. Children could essentially get a less expensive policy for the same coverage amount.
Cash Value Benefit
Most whole life insurance policies have a cash value benefit which can help your child later & in life take out a loan from his or her policy for college, a wedding, or other major life purchases.
Just remember a policy on a loan comes with great consideration, so we encourage you to educate your child beforehand.
Child Life Insurance Cons
In the insurance world, there are inevitably skeptics who take a different approach to child life insurance for a few reasons.
Low Child Mortality Rates
According to the Centers for Disease Control & Prevention, approximately 12,000 children and young adults, ages one to 19 years, die from unintentional injuries each year.
While most could use this to prove child death is unlikely, this number only includes unintentional injuries, not juvenile cancer & other critical illnesses posed on our youth.
They Can Get Life Insurance Later as an Adult
Those who disagree with juvenile life insurance argue most adults in their 20s to 30s are insurable & can still qualify for relatively inexpensive premiums.
Priorities for parents differ, so some may look into financial coverage for their children and some may not. There is no “one size fits all” when it comes to insurance.
Any life insurance purchase comes with heavy consideration and those looking to buy should be well informed about their purchase.
We encourage those who are looking to speak with a licensed insurance professional before purchasing.
Why We Bought Life Insurance Policies for Our Children
Why would I do that when the experts tell you it isn’t necessary?
There are a few reasons:
- Medical care is expensive
- Funerals are expensive
- Life insurance on children is cheap
- The policy we bought guarantees future insurability
- Peace of mind
Let’s look at these a little deeper.
Final Medical Expenses
I don’t know any parent who wouldn’t go to the ends of the earth to save their child.
If something happens to my child I’m not going to ask the doctor how much a procedure costs before giving the OK.
My only question will be whether or not my child has a better chance of survival. I can worry about trying to negotiate the medical bills later.