When it comes to children, planning for every conceivable future scenario is a part of parenthood. However, among these scenarios, the one that remains rather under-discussed, perhaps due to its unsettling nature, is life insurance for children.
Considering life insurance for your little ones can be a wise financial decision, but your choices should be based on your family’s unique needs.
Understanding the Purpose
Before embarking on this journey, meditation is key. Why would you even consider life insurance for your child? Is it to cover funeral expenses in the grim event of their premature death? If so, attaching a child protection rider to your existing policy may be wise. Alternatively, you might consider a cash value policy that moonlights as a college fund. Unlike strategies such as the 529 plan that serves a single, predetermined purpose, the cash value in a whole life policy builds over time, giving you the freedom to utilize the funds for college fees, a car, or a graduation gift.
Transfer of Policy Ownership
Many initiate this journey by buying insurance for their newborns with the intent to transfer the policy in due course. For instance, imagine a family with two kids. They opt for a cash-value life insurance policy for both at an early age while also starting a 529-college plan. As the children grow older, the parents can fund their education using the 529 plan and then transfer the insurance policy ownership. The young adults can then either keep the policy active for eventual expenses or cash it in for significant purchases.
Navigating Future Insurability
Child life insurance might become a beacon of hope if there’s a chance your offspring won’t qualify for a policy as an adult. A family history of diseases like diabetes or hypertension may make it hard for your child to secure an affordable life insurance policy in the future. That’s where child life insurance shines. Some plans include an option to hike the face amount at certain intervals without needing proof of insurability – a potential lifesaver for those diagnosed with severe health conditions later in life.
The concept of child life insurance is complex and laden with emotions. But through understanding its purpose, the transition of ownership, and future insurability, we hope you will make an informed decision that suits your unique family dynamics.
