Why Would I Need to Get Life Insurance for My Child?
Life insurance is a topic usually associated with adults since it provides peace of mind for those who have someone depending on them financially. But there is life insurance coverage for minors as well, known as child life insurance or juvenile life insurance.
It can sound unnecessary or even a little morbid, but child life insurance offers an array of benefits, including financial planning and future insurability for your child. Let’s dive into what child life insurance is, its purpose and the key considerations when exploring this option.
Understanding Child Life Insurance Child life insurance is typically a permanent policy designed to serve multiple purposes. Its primary function is to offer a death benefit in the tragic event of a child’s passing. While no parent wants to contemplate that scenario, it can ensure financial support for your family during an emotionally challenging time.
Another common reason parents (or grandparents) get coverage for their child is to build cash value over time. This cash value is not only a monetary asset, but also a tool for supporting their future financial needs.
Who Benefits from Child Life Insurance? Child life insurance can help with a few key things: guaranteeing your child’s future insurability, forming a fund for major expenses later in life through the cash value and providing a death benefit if needed.
Future insurability: It can’t be overstated how important this first part is: securing your child’s future insurability. Unfortunately, you can’t predict what health conditions may impact your child as they age. Depending on the situation, they could be uninsurable later in life. If they’re insured now, they’ll be able to keep that permanent policy for life regardless of any health issues that may arise.
Plus, life insurance premiums are typically more affordable the younger and healthier you are. By getting coverage for your child at a young age (as early as two weeks old), you can safeguard your child’s access to insurance and get a better policy at a more affordable rate than if they tried to get that same coverage as an adult.
Cash value: Secondly, child life insurance acts as an investment for giving your child a strong financial start in life. The cash value that accumulates in the policy can be tapped to fund major life milestones, like getting their first car, paying for college or even a down payment on a house later on. The beauty of child life insurance lies in its flexibility—the cash value can be utilized at the discretion of the policy owner for any purpose you wish.
Death benefit: If the unthinkable were to happen while a child is still young, the life insurance death benefit would be there to provide financial support for things like a funeral, medical expenses or leaving a legacy. Take the Koonsman family, for example, who made the fortunate decision to purchase permanent policies for both of their daughters when they were young. Their plan was to gift the policies to their girls once they were grown. Instead, they used Hope’s policy to pay medical bills and start a foundation in her honor after she died unexpectedly at age 19 from a birth defect that they thought was long in the past.
Getting a Child Life Insurance Policy Purchasing a child life insurance policy is relatively straightforward. Through a licensed agent, parents (or grandparents with parental consent) can initiate the process of life insurance planning for their child. Generally, healthy children can be covered with ease, involving a questionnaire and a medical record check. In most cases, there’s no requirement for a physical examination if the child is born healthy. However, if a child is born prematurely or with health concerns, there might be a waiting period until they’re a year old or older.
Child life insurance policies are permanent, providing coverage throughout their lifetime, but flexibility remains a hallmark of these policies. They can be canceled at any point through cash surrendering, cashing out the policy’s value or discontinuing premium payments. If cashed out, there might be tax implications for permanent policies. Notably, these policies also enable policyholders to take out loans against the cash value, so it’s important to consult an insurance professional about your options.
In conclusion, the benefits of child life insurance extend far beyond its surface. It’s an investment in your child’s future insurability, a vehicle for financial planning and a means of establishing a strong foundation for life’s milestones. Whether you’re a parent or grandparent, exploring child life insurance could be key to unlocking a brighter future for the ones you love.
Barbara Pietrangelo, CFP, CLU, ChFC, LUTCF, RFC, CLTC, has been with Prudential in Grand Rapids, Mich., for more than 27 years and specializes in retirement planning. She was the president of the MDRT Foundation in 2012.
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