Nothing stirs up the emotions like the thought of something happening to your child(ren).
My wife and I recently had our second child, and I know the first few weeks were filled with a range of emotions – what if something happens to me, or my wife, or, heaven forbid, my daughters?
The statistics say the odds are long, and it’s likely nothing will happen. And it probably won’t. But you never know. And it’s the thought which keeps parents awake at night.
So… back to our question: Should you buy life insurance for your children?
The “Experts” Say Don’t Buy Life Insurance for Your Children
Many financial experts advise us to skip it. You don’t need it, they say, because children aren’t typically the income earners in your household.
And, this is true for the most part (unless you are the parent of a child model, actor or actress, etc., but that is a different situation altogether).
Another reason many people say to avoid child life insurance is that the thought of “profiting” from the death of a child is immoral or macabre.
When you run the numbers, it’s easy to make a case for not buying life insurance for children, especially if you aren’t replacing any income.
In fact, we recently listed life insurance for children as one of the policies you don’t need, and you don’t need it if you are buying it as income replacement or as an investment.
So… now I have a confession to make: I have a life insurance policy on both of my daughters.
Why We Bought Life Insurance Policies for Our Children
Why would I do that when the experts tell you it isn’t necessary?
- 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.
Do you have health insurance?
Yeah, me too.
But most insurance policies have deductibles, co-pays, and sometimes even exclusions or limits on what the insurance policy will pay.
Our plan is a high deductible health care plan, which would put us on the hook for several thousand dollars should the worst happen.
This, of course, doesn’t include any other associated costs.
A Funeral Will Run You Close to $10,000
Yes, you can have a cheaper funeral.
The average cost of a funeral in the US was $6,500 in 2009 (most recent information).
But these figures do not include the costs of the cemetery plot, headstone, or other charges such as flowers, obituaries, hosting family, etc.
It is possible to have a less expensive funeral, but it is also possible for the expenses to run much higher than $10,000.
Children Don’t Cost Much to Insure
Statistically, children don’t die frequently and the value of their life insurance policies is small. That works in the favor of consumers.
When I purchased my life insurance policy for myself, I was given the option of buying a rider to cover my children.
I bought a life insurance policy for each of my children — I only pay $2 a month (each) for a $20,000 life insurance policy on each of them.
You can go higher, but my wife got the same rider on her policy, so we are paying $4 a month (each) for $40,000 of life insurance coverage on each child.
In general, the best plans are those which focus on one thing. Keep your insurance policies, investments, and college savings as separate accounts.
It Guarantees Future Coverage
The life insurance policies we got on our children assure they will be able to purchase a life insurance policy when they turn 18 and are no longer covered under my policy — and this assurance is in place regardless of whether or not they would otherwise qualify for life insurance.
For example, if they contracted an uninsurable disease or if something else happened which made them ineligible for a life insurance policy.
This may or may not be the case for your policy, so be sure to read the fine print.
It Gives you Peace of Mind
I love my children and I don’t want anything to happen to them. Anything.
But I also understand that life is precious, and we cannot control everything.
If something happens to my child(ren), I will do whatever it takes to help them survive, or even keep them comfortable in their final days or hours.
Medical care is expensive. Funerals are expensive.
Neither of those facts will change any time soon, and I am willing to spend a few dollars each month to help avoid a financial disaster down the road.
Tips for finding affordable life insurance for children: You will find more affordable life insurance policies for your children if you combine policies, similar to what I mentioned above. Stick with term life insurance; if you want to buy your child an investment, buy a real investment, not life insurance. Some companies also offer combined children’s life insurance and college savings accounts.
Sometimes You Should Ignore the Experts
I understand why some financial experts recommend avoiding life insurance policies for children.
In many cases, they are correct. It doesn’t make sense to use life insurance as an income replacement for most children, and it almost never makes sense to use life insurance as an investment for kids.
But making a one-size-fits-all statement to not buy life insurance for kids is over-thinking things.
Personal finance isn’t always about making the decision which is the most “technically correct.”
It’s also about making the decisions which give you flexibility or peace of mind.
You don’t need a million-dollar policy on your child — that’s likely too much. But a small policy is actually can be a financially prudent decision, and one that helps you sleep better at night.
To say it another way: I can easily afford to spend $4 per month.
Could I easily afford to spend $40,000 in an emergency?
That’s not quite as easy to do.
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Tom Schisler says
Ryan, I have two daughters as well, mine are older 21 and 24, I took small policies out when they were young and increased when they hit college age. A lot of student loans require a cosigner as well as car loans etc. One daughter completed college, the other is a junior. They both work and are striving to have as little debt as possible. We paid a large portion of thier tuition and they have some loans. If anything would happen to one of my girls I will be forever emotionally devistated, but I will not be financially devistated.
The experts are wrong on this issue, especially with college costs what they are today.
Ryan Guina says
Tom, my children are much younger, so I never even considered the cost of tuition or similar expenses. That is a very valid point.
Patrick Braun says
Your article is right on! And there is one additional reason which you touched on but did not elaborate on. It’s all about insurablity. There are many reasons why people can’t buy standard life insurance. For young children it may be a dread disease, previously undiagnosed. For teens it is drug and alcohol use, social diseases, car accidents and, again, dread diseases that pop up. For young adults it’s a DUI, military service, and all of the previous things. Right now, that two year old looks great and you can buy a nice policy very inexpensively. Life insurance makes a great gift for a grandparent to give as well. Protect the insurability well into the future!
Ryan Guina says
Great points, Patrick. Regarding military service: It is possible to buy up to $500,000 of life insurance through the military (SGLI: Servicemembers Group Life Insurance). However, there are many private and public life insurance companies which will either not insure military members, or will insure them, but not cover a death caused from an act of terrorism, or an act of war. There are some companies which fully insure military members, so it’s a good idea for military members to look into those options if they feel $500k isn’t enough for them. (I believe USAA is one such option).
Alexa says
It’s a great idea to purchase life insurance for your child if you think they will not be insurable later in life. Like you said, it can be used for funeral expenses and give you time to grieve without stressing about finances. Life insurance can also be used as a saving investment for their future; they could use that money for college or a car. As an employee at AccuQuote Life Insurance, I know that it’s never too soon to start investing in the future; you never know what will happen.
Kris says
I get your points but I’m still not sold on this idea. The idea of paying for burial insurance on a kid just seems like such a money-sucking type of thing. For me, it just doesn’t sound right no matter the logic, sorry.
Ryan Guina says
Kris, I understand the hang up many people have when discussing life insurance for children, but the reasons I outlined in this article go far beyond burial insurance. It costs me $48 a year to insure each child, or $96 total. That comes out to roughly $1,800 to insure them both through age 18. At that point, they are guaranteed at least a minimal amount of life insurance coverage, even if they would not have been able to otherwise qualify for life insurance – reasons such as diabetes, cancer, leukemia, or a host of other diseases which might disqualify someone for life insurance.
The entire point of life insurance (or any insurance for that matter) is to shift risk to someone else. And for me, it’s worth $1,800 over 18 years to purchase a policy for my children. If the worst happens, then medical bills, burial costs, and other expenses won’t be as cumbersome. If the worst doesn’t happen, and I pray to God it doesn’t, then I spent $1,800 for peace of mind.
Jeremy @ Modest Money says
When it only costs $4/month I’d feel guilty not paying for life insurance. You’re definitely right that it gives you huge peace of mind. I don’t have kids myself, but when I do, I’ll be sure to look into a small policy like this. I admit when I thought of the idea of life insurance for kids before I had thought of it more on the negative side of trying to profit if anything happens to your kids.
Ryan Guina says
I had misperceptions about children’s life insurance as well – mostly because I ha let the “expert” opinions sway my position on the topic. But now I realize it’s not about replacing children’s income or “making money,” but preparing for the possibility that as a parent, you could face some large, and unexpected expenses in the event your child dies. So a small policy is probably a good move for most people.
Bryan says
I completely agree with you about ignoring the experts on this matter. I have 7 children and have always carried life insurance on them. As you have pointed out the cost of funerals is staggering. I have been blessed that I have not needed to use the insurance but why add a huge financial burden at such a devestating time if that heart breaking event were to happen.