A life insurance policy for children and newborns is a very difficult subject to discuss. No parent wants to think about it so early in a child’s life.
But the National Funeral Directors Association says the average cost of a funeral in 2014 was $7,181.
This is a reasonable sum of money.
However, taking out a life insurance policy for children isn’t all about the funeral expenses – there are a lot of other benefits.
The policy can guarantee that your child can get cover later in life no matter what their medical circumstances. It accumulates a cash value which can be used to borrow against if need be. And it can be used for tax efficient savings.
Let’s look at the two types of policy available to you.
Two Types of Life Insurance for Children
Term Life Insurance
For this, you buy a term life insurance policy for yourself or your partner and then extend the insurance for other members of your family.
This isn’t specifically a life insurance policy for children. However, it will provide coverage for a certain time period and will pay an amount of the death benefit to your children if you or they die within the period of the term.
Permanent Life Insurance
This type of insurance is also called whole life insurance. For this policy, the parents don’t need insurance, as the policy will be in the child’s name.
The amounts insured are generally small, say $50,000 or less. This provides coverage for the child’s whole life and includes a savings account that builds up over time.
Permanent life insurance is the policy with the greatest benefits for your child in the long term.
Benefits of a Life Insurance Policy For Children
There are a few reasons why you should think about purchasing life insurance for your newborn baby or your child.
Firstly, a life insurance policy for children will guarantee that your child will have life insurance coverage for their entire life.
No matter what health issues affect them down the road.
A child who develops medical problems when they grow up might have a problem getting insurance coverage. If you buy the insurance while your loved one is still a child this will not be an issue. This is one of the main reasons why people get insurance for their children.
Initially, the cover is smaller than an adult policy, but a life insurance policy for children has riders associated with the policy. A rider is a legal term meaning amendment or addition. With a rider in place, your child can purchase extra insurance coverage as they get older.
The costs will be lower compared to a similar insurance taken out by an adult. This cost could really add up over the years since Americans are living longer than ever.
This will be especially true if there is evidence of certain types of diseases running in the family.
A life insurance policy for children also gives the parents peace of mind. If something terrible happens to your child, the insurance will cover the costs and provide you with a little financial stability during a very difficult time.
Funeral expenses, medical bills and, potentially, family counseling will be covered by the life insurance policy for children.
And, depending on the policy, it may provide a bit of money for the family if they need to take time off work.
Caring for your own health after the death of a child is often overlooked but it’s very important to give yourself time.
Another important benefit to the child is the cash value of the policy.
Once the cash value has been built up over a number of years, you can borrow against it. The surrender value of the policy can be used to apply for loans.
The loans can be used to fund education or a down payment on a house or whatever else you can think of.
If you want to, you can even surrender the policy and take the money. This will incur a surrender fee. And, of course, doing so will end the policy so your children will no longer be insured.
The flexibility of a life insurance policy means that if you want to make changes to it in the future you can.
The prices quoted by life insurance companies are based on life expectancy of the insured.
The longer the life expectancy of the insured person, the less expensive the insurance policy will be for them. Children, in general, live for a long time. Plus, no one has the potential to live longer than a newborn child.
Because of this, the cost of a life insurance policy is going to be inexpensive.
These types of insurance don’t require medical underwriting, because, for insurance purposes, all newborn babies are assumed to be healthy.
For a permanent life insurance policy for children, the dividends from that policy may be used to pay the entire amount due on the policy by the time your child reaches 18 years old.
This means, when the policy transfers over to them, they will never have to make a payment. The policy will continue to grow every year and save money.
This makes sense as an initial investment to get you child on the right track financially.
A term life insurance policy will be even cheaper, even if the face value is large. Most children will be assumed to outlive the length of the term coverage.
A term insurance won’t have the same long term benefits of a permanent, whole life, policy.
Other reasons to choose life insurance for your child
- If you have to support your child financially for the rest of your life
- for example, a child with special needs.
- If your savings accounts have been maxed out
- If you need another a long-term investment for your portfolio
- If you think your heirs may have to pay estate taxes.
Best Life Insurance Companies
When looking for a life insurance policy for children, the most important thing to look out for is company longevity. If it’s been around a long time, it’s doing a good job.
The company needs to have strong financial records so you know they will be there for your child in the future. Good dividend payments and excellent customer feedback are great markers to give you peace of mind.
New York Life, Prudential, MetLife and Fidelity Life all offer life insurance for newborns. These companies have a good reputation and have proven themselves over many years.
The Gerber Grow-up Plan is designed for children.
You can apply for this plan when your child is between 14 days and 14 years and it gives you lifelong protection as an adult.
When your child reaches 18 years old, the coverage doubles – a $10,000 plan doubles up to $20,000 at no extra expense.
New York Life has a family plan that will give the parents $250,000 coverage and each of their children will get $10,000. Again, this can be added to in later life.
State Farm have a similar family life insurance policy that includes children for an extra $50 per year.
If we look back on the past 50 years, history has shown that mutual life insurance companies are the ones who pay the strongest dividends.
Reasons against baby life insurance
A life insurance policy for children is a extra expense for a family.
Admittedly, the expense is usually very small. Policies can be purchased for less than $10 per month.
But for families where the money is tight, life insurance for children may be an additional expense they are unwilling to pay.
In this case, using the policy just for savings might not be the right move.
You can usually get a higher rate of return an investment account, although because of the stock market’s recent volatility this is by no means guaranteed. A life insurance policy will grow at a steady rate and you don’t need to worry about the ups and downs of the market.
On the whole a life insurance policy is more about protection and stability for the future. The financial aspect of it is a added bonus.
How to buy life insurance for children
To make it easier for you and get an instant quote, use our online life insurance comparison tool.
Simply fill in the boxes and compare rates from several different companies. You can buy a life insurance policy or get more information from different providers.
Many companies will provide a life insurance policy for children, but choose one that’s got a lot of existing customers and that has been around a few decades.
A permanent life insurance policy will serve your child better than a term insurance policy in the long run. It will give a better return on the investment in the form of security, lower payments, and equity.
If you need any help at all with your life insurance needs, we’d love to hear from you.
Feel free to contact us, today! We look forward to hearing from you.