Why Life Insurance for Kids Isn’t Always a Bad Idea

While making the rounds of the carnivals I came across an article called Kids Don’t Need Life Insurance posted by Mom over at Wide Open Wallet.

I knew before I clicked on the link that I was going to disagree with the article, but that’s to be expected. After all I was an insurance agent for many years. I don’t think that makes me biased towards insurance; I think it makes me an informed consumer. I was never one to sell a policy just to make a commission, and I only sold (and bought) what I felt were the best policies we offered.

I’d seen other posts on this topic, and I always leave a comment with the opposing point of view. Before I’d even clicked on Mom’s link I’d decided to finally write my own article about it, so when Mom e-mailed me and asked me to either write a guest post or write my own article this post was already halfway written. A fait accompli’.

Mom’s article specifically mentions the Gerber Life policy. Yes, we all get inundated with brochures from them almost from the moment that our children are nothing more than a twinkle in our lovestruck eyes.

The Gerber Life policy isn’t the policy I’d buy. I’m going to address two of the reasons Mom wasn’t fond of it, but that aren’t specific to the Gerber policy…

So, yes, I respectfully disagree that kids don’t need life insurance. Sure, most kids don’t neeeeeed it, and we hope and pray that they never will. A lot.

Still, I purchased a policy for my son at birth. Why? Husband has diabetes, and I had bad allergies (that my doctor now says is mild asthma). These two illnesses are hereditary. Those with a family history of diabetes, asthma and other health issues face higher rates for life insurance, sometimes significantly. Depression, anemia and even seemingly mild conditions can also lead to higher life insurance rates. Heck, I wonder if gene testing will one day be a part of life insurance underwriting…

Mom wasn’t impressed with the uninsurability issue. She says,

“Another stated benefit is that between the ages of 21 and 28 the child has the option to double the amount of their policy no questions asked. Which means that if they are uninsurable because of a disease they can still get life insurance. First off, it’s highly unlikely that at age 21 they will be ill enough to be uninsurable.

Insurability is, to me, the most important reason to buy life insurance for your children. Its not just about being able to get life insurance, its also about how much they’ll have to pay to get it. Parents can help their child avoid having to pay substandard rates for life insurance if they are unlucky enough to develop any of those or a brazilian other medical conditions.

My son started showing signs of Reactive Airway Disease, the precursor for Asthma, at two months old. He’s been hospitalized and on nebulizers and/or other lovely medications ever since. Now he’s nearly four, and it seems to be full-fledged asthma. Thank goodness it’s under control.

I’d still have bought the policy for the insurability protection even if we didn’t have the family history we have. Even if he never benefited from it. I hoped he wouldn’t.

Mom also said,

“And secondly, even if they double their coverage, it still isn’t very much life insurance.”

True with the Gerber policy. But they’re not the only game in town.

The policy I bought for my son is a whole life policy (more on that in a minute) with a base benefit of $25,000 and includes a $25,000 guaranteed insurability option that allows him to purchase an additional $25,000 coverage at eleven different ages (17, 22, 25, 28, 31, 34, 37, 40, 43, 46 & 49, AND and he can “trade” his next option to increase coverage when he marries, AND a few other perks like automatic 90 day term riders for his kids as they’re born…) without having to prove he’s still healthy. That adds up to $325,000 coverage. Yes, he’d have to pay for the additional coverage if he chooses to purchase it (and it doesn’t have to be whole life; he can choose term), but he’d pay standard rates, not the much higher rates he’d be paying otherwise.

About whole life insurance, Mom says,

One advertised benefit of baby life insurance is that it’s a whole life policy. Which means that it doesn’t expire like term life does. Most financial planners avoid whole life policies even for adults. You pay more for whole life because some of your payment is invested which builds the cash value. Financial planners argue, and I agree, that you should pay less for the life insurance and invest your money yourself.

I don’t mind whole life insurance as an adult as much as most financial planners do, and in fact I have one. Taking them out when you’re an adult can be very, very expensive indeed, but the premiums never go up. And, if the policy performs well, you may at some point be able to stop paying the premiums. But when the policy is purchased as a child the rates are very low. There’s something to be said for a diversified portfolio, too.

Also, I’ve always thought that having a small whole life policy that’s taken out when you’re a child is a good base for an adult life insurance program later in life. You can supplement the small whole life policy with term when you’re raising a family and paying a mortgage (when you need a high death benefit with the lowest possible premium). When you no longer need the large death benefit you can let the term lapse and then you have that lovely little policy your parents or grandparents got you as a child, and that can see most people through the balance of their lives. It always made sense to me…

The policy I have on myself is the same one I have on Son. The premiums are payable for only ten years and then the policy is guaranteed paid up forever (watch out for ones that don’t say “guaranteed paid up”). Of course the premiums are higher, but we save money by paying them annually. After ten years we’ll stop paying, and he will have the policy forever. At less than $300 for the year it doesn’t break the bank. Son will only have to pay more if he increases the coverage by exercising his guaranteed insurability option.

If you don’t want the whole life, or if you want to pay less, many adult term policies offer children’s Term Riders for just a few dollars a month. You can’t get the guaranteed insurability option that way, but most companies will allow the children to spin off their own policies when the rider expires (usually at age 18 or 21).

Of course most children aren’t going to develop serious illnesses, and thank heavens for that. But I knew there was a likelihood that he would develop asthma, and I feel as a parent that I made the right decision for my son.

Sure, I know we could take that $3000 and invest it for him and with the power of compounding he’d have a brazilian dollars by the time he’s ready to retire. Son may or may not choose to exercise the options, or he may cash it in and take a trip to Bora Bora.

What you really buy with any kind of insurance is peace of mind. Buying life insurance on my son gives me peace of mind that he’ll have options. That, for me, is well worth the premiums.

~

The preceding information is not advice, it’s just my thoughts and opinions. I’m just a girl on the web, not currently licensed in insurance or anything else in any state. You should absolutely seek the counsel of an insurance agent and/or a mortgage professional licensed in your state before taking any action at all. Coverages and programs discussed may or may not be available in your state.

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6 Responses to “Why Life Insurance for Kids Isn’t Always a Bad Idea”

  1. Good Fountain Says:

    I agree with you on this. We have riders on our term life for the kids.

    Although, it IS a depressing topic. Right up there with guardianship for your kids should something happen to both mom and dad. Sigh.

  2. Jen Says:

    Whave a small ($25k) one on both of our kids because honestly, if something were to happen to one of them I don’t know how we’d be able to work for a long time and I don’t want us to lose everything, for the other child’s sake. Also, we’d want to be home for a while with the other kid and not have to worry about work. Sounds morbid and I have never heard anyone state this reason before, but I lost my father in a freak accident when he was in his 20s so I think about death and how I would handle it more than others probably.

  3. mike Says:

    I agree with Jen. I just got married and as we were debating this, my wife brought up that very point. If our son was to die there is no way she would be able to go back to work for at least a while. That insurance is a stop gap to allow the grieving process to complete without other financial worries.

  4. Nicole Says:

    I was diagnosed with stage IV colon cancer 6 months after having my son. There were no prior cases of this cancer in my family. I have not had the genetic testing done, but I feel my son is at a disposition. Therefore, I’ve been researching this whole life for him. I, on the other hand, have not found anyone to insure me at this time.

  5. jw Says:

    Many think that the only ones that need life insurance are wage earners because you are replaceing someone earnings when you take out life insurance. As the prior post mentioned that they would not be able to go back to work for sometime after a child would pass should it happen and to pay for a funeral can wipe out your savings. Thisk of a policy on a child as income replacement while you go through the greiving process. Youmay have vacation but would it be enough. During 12 week FMLA most would not be paid during that time. we have to face the fact that these things do happen. There are Childrens Hospitals everywhere, childrens cancer units ect. It does happen and there is nothing like being prepared. Shelter insurance has a great junior policy. One time premium or 12 monthly payments and the child is insured till age 26 with no aditional premium. They may convert to 5x the face value. the lowest face value avaialable is 5000 and the highest is 20,000 at a one time cost of $555.00 or a monthly of $49.00 for 12 months I think this policy is well worht the investment.


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