Why Buying Life Insurance for Children Makes Sense
Chances are that planning for your children's future is one of your top priorities as a parent, whether you're setting aside money to pay for college or making sure your kids can continue the lifestyle they've grown accustomed to should anything happen to you.
But one option that often gets overlooked is buying a life insurance policy on your child’s life. Why would you ever do that? Beyond helping them with death benefit needs, buying a policy on your child’s life when he or she is young can give them a lifetime of benefits you may not have known about.
Consider these advantages of buying life insurance for your children.
- Guaranteed future insurability. Insurability means you or your children can buy more life insurance in the future without having to take another health exam. Why is that important? Let’s say your child is healthy now, but as a teenager she is diagnosed with a health condition like diabetes. That could make it difficult or impossible for her to buy personal life insurance in the future. But if you’ve protected her ability to buy additional life insurance based on her health today, she will have options to buy additional life insurance someday when she needs more protection.
- Earn cash value. Your child's permanent life insurance policy will build cash value that you or your child can use for a variety of reasons, such as covering emergencies or paying for a college education, a wedding or a down payment on a condominium or house. By buying a policy on a young child, you not only benefit from lower premiums, you also have more time for the cash value to grow, tax free—and accumulate a significant amount by the time your child reaches adulthood.
- A teachable moment about financial matters. When the time comes for your child to take ownership of the policy and start making payments herself—perhaps when she graduates from college—you'll have the perfect opportunity to talk about the value of financial planning. Financial planning isn’t always top of mind for young adults because they don't understand how it works or don't appreciate why it's important. But having a life insurance policy with a substantial cash value on hand is a tangible example of how saving early and over time—even if it's just a small amount of money—can have a big impact down the road. The need for life insurance goes beyond the death benefit or protecting loved ones. Life insurance can be an integral part of a balanced, strategic financial plan. If you're not sure how to begin the discussion with your child, invite your financial advisor to lead the conversation.
While it might not be the first thing you think of when you’re planning for your child’s financial future, buying permanent life insurance for your children can give them a strong financial start. Your children may not appreciate the value of your efforts at first. But as young adults and if/when they have kids of their own, they'll come to appreciate that you had the foresight to think about their future early in life.