Buying Life Insurance on Young Children.

The decision to purchase life insurance on your young child can be a sensitive topic.  Many parents that I have spoken with think that it is unnecessary and unwise to purchase insurance on a child, but they fail to consider the financial impact that the death of a family member may have.

The key term that I keep referring to in many articles is “unmanageable financial risk”.  Would the death of your child present an unmanageable financial risk to your family? In order to explore this more, let’s consider what some of the implications and costs may be…

1.)      The very basic financial risk would be the cost of a funeral.  Most experts approximate this cost between $5,000 and $15,000.

2.)     The more difficult cost to measure is the income lost due to an extended time away from work, and the potential effects that a deeply painful period of mourning may have on a family’s income earner.

The first consideration above is one that parents tend to agree with.  However the funeral costs are often manageable without the need of insurance.  The second consideration requires some serious thought.  Often we do not like to think about things that are difficult.  I would never want to entertain the idea of the death of one of my children, but we must respectfully and consider the potential impact on the family during a very difficult situation.  As a rule of thumb it may be appropriate to consider a policy that can replace 6 months of family income.  This will allow one or both spouses to take all the time needed without any added financial pressure.

Another reason to consider purchasing life insurance on a young child, is that they may be able to assume the coverage with they turn 18 and have their own policy going forward; regardless of their health.  You may also be able to be able to purchase a permanent policy and have it fully “paid-up” (no more premiums required) by a certain date.  This might be an interesting idea to help set them on their way once they are out of the nest.

Often times, life insurance on your children can also be purchased as an additional feature (aka. “rider”) on the parent’s life insurance policy.  You may also be able to combine all your children on the same policy.

If you would like to know more about this concept or discuss some options, please feel free to contact one of our experienced advisors today.

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