Top Money Experts Agree: Don't Buy Life Insurance for Kids
Friday September 29, 2006
Two top money experts, Marshall Loeb of Market Watch from Dow Jones and Jeff Opdyke, author of "The Wall Street Journal Complete Personal Finance Guidebook" both agree with my advice in the article Don't Buy Insurance You Don't Need.
Children do not need life insurance. Yes, there have been cases where life insurance for one's child has been a blessing, but in the majority of cases, children do not need life insurance since no one depends on income from them. Need to know if you need life insurance? Check out Who Needs Life Insurance?.
We purchased $100,000 policies for our children when they were born. The purpose is for them to have life insurance policies on themselves already established before the adult premiums kick in. We were able to get an incredibly low premium….which is not possible to obtain if they were to purchase it as an adult. This will be something we can provide for them, so that when they are adults they will at least have a life insurance policy that has a very low premium and it will have a large cash value if they choose to cash it in.
It’s true that our children to not need life insurance for income replacement. However, it’s likely that my children will go on to raise a family of their own. There is no guarantee they will be insurable at that point. That’s the main reason I ask my clients if they would like to insure their children. An inexpensive way to do it is to buy a child rider on the adult’s policy. Many life insurance companies will insure a child’s life for $10,000 or so for a couple bucks a month. More importantly, some riders allow the child to convert this child rider to up to $250,000 of life insurance without evidence of insurability – a great feature for a very low cost. I can think of several personal acquintances I know of who have MS, severe asthma and other health problems that make them uninsurable. If their parents had known of this option, you can bet they would have taken it.
As for term vs permanent insurance (whole life and UL), I find very few clients at the age of $50, who have term insurance. Why? because it got so expensive that they let it go. The people who have policies, in my experience, are those who had the foresight and financial means to purchase a permanent policy. Due to the time value of money, looking at what these people are paying today for their policies, the policy is very cheap in today’s dollars.
I would dare say that the likelihood of making a claim on a Term policy is much lower than the likelyhood of making a claim on a permanent policy. Why? Not because the mortality rates are different, but because the permanent policy is more likely to be kept over the long term.
That’s not to say that permanent insurance is always the answer, but it can be.
This article completely ignores the most importang question that parents need to ask themselves: If my daughter died today, when would I feel comfortable leaving my wife home alone and going back to work in sales where I have to have a positive attitude to survive? I would have to have income replacement for myself and my wife during the grieving process. Life insurance isn’t just to pay off the mortgage. Sometimes people need it to buy themselves time. This article is obviously written by someone who has never experienced the death of a child. Listen to a parent who has and you will change your mind.
I totally agree with the last person’s comment. You need to also plan if your child passes away. I know someone whose son slipped on the stairs and died at 23 years old. Who pays for the funeral???? The parents do. Also, I find it silly since the premium would be ridiculously low for young people.
Regarding James’ comment above… I doubt there are that many people like James that would need to take off several years to grieve and get there game faces back on after losing a child. Nice try on a new angle- what insurance company do you sell for?
For all the money we spend things nothing could be more important than a few dollars a month to make sure you don’t have to take a loan to give a child who pass away a nice burial. There is nothing wrong with that. That is one reason, a second which has been mentioned is protection against being uninsurable. Why do people get so afraid of life insurance. Guess what, it always pays. What else gives the family a tax free check at a the possible worst time in someone life and allows them them to take a break from life by not having to worry about going back to work right away, or being able to take time to deal with things. I know people who have lost a child and it has been a few years now and they still struggles with it. Life insurance is instant dollars. For the cost, why would you not get it. Where else can you pay $1 and get back $10??