You should buy a whole life insurance policy for your child if you are in a good financial position to do so. Beyond the death benefit, a whole life policy has advantages that flow over into adulthood, and foregoing the purchase of one can cost more in the long run.
On this page we look at how a whole life insurance policy works for children and the many reasons you should look into one for your child. We also discuss the disadvantages and situations when buying a whole life policy are not preferred.
A whole life insurance policy for a child works similarly to one for an adult. You buy a certain amount of coverage and pay premiums into the account, and the account is either paid out in the unfortunate case of death.
A children’s whole life policy does have distinguishing features. Children do not need to do a medical exam before coverage can be bought, and the beneficiary is the adult purchaser until a point of transfer, usually around the start of adulthood for the child.
Whole life insurance policies do more work than term life insurance policies, and these are usually your only option for a child’s policy. The safety net is broad reaching, providing coverage for many situations and extending through to adulthood.
The most obvious reason to buy whole life insurance is for the death benefit that is paid out. This is much less likely with children, but having a policy to cover the cost is preferable for a few reasons.
The death benefit can be used to cover the cost of a funeral. Most parents do not set aside to cover the cost of a funeral for their child, and a life insurance policy eliminates this worry.
Policies tend to be larger than the cost of a funeral, and this can provide enough financial compensation to let parents or guardians take off more time from work to grieve.
Many whole life policies allow you to grow money on top of the death benefit. This cash value is accumulated through interest earned on a portion of the premium, but you can also purchase a “participating policy” that pays out annual dividends.
Depending on when you purchase the policy, the cash value should be sizeable when you transfer the policy to your child. This cash value can be used for major expenses such as:
Your child can also leave this portion of the policy alone so it can continue to grow until they need to access it.
One of the benefits that gives the most peace of mind is the guaranteed coverage. There are many diseases and illnesses that can present later in life that will disqualify your child from gaining coverage or set it at ridiculous rates.
By purchasing a whole life policy before these illnesses even start to show symptoms locks them into a policy that you hand over in the future. Because the policy already exists they will not need to go through a medical exam and will not need to move through life without coverage.
Whole life policies bought for children tend to be a lot less expensive than those for adults. This is because there is a lower risk of the insurance company paying out.
Because you lock in the price when they are younger, the premiums are lower throughout their whole life. The cost is based on a younger and healthier version of your child.
While there are many reasons you should buy a whole life insurance policy for your child, there are a few things to consider. These policies are not a top option for investing or saving, and you need to have realistic expectations for their cost and coverage.
You should not look to a whole life insurance policy if you are only trying to find a way to save and grow wealth. While there is a return on your premiums, it is far lower than many other methods.
This works well in conjunction with a plan for savings, but it can take more than 10 years for the policy to break even.
A whole life insurance policy is only valuable if you can continue with the premiums. This means you need to be able to cover premium costs for years for it to be valid. Otherwise, you will need to terminate the policy, and you will only be left with a portion of the cash value.
There is a chance that the cash and dividend value can end up covering the policy premiums, but this takes many years before it can be considered.
Depending on the insurance company you use, it can be difficult to find a children’s whole life insurance policy that provides the coverage you want or even need. In some cases, caretakers may not consider the maximum coverage to be enough.
This means that you will potentially need to purchase more to reach the coverage you want. Your child is also likely to need to purchase more coverage as they mature, so this policy will not replace those long-term needs.
While buying a whole life insurance policy for your child is recommended if you can do so, there are a few things that most suggest you take care of first.
Start by ensuring your debts are either low or non-existent. You should have other funds set up, like emergency and retirement funds, before looking into life insurance policies.
You also need to have a life insurance policy set up for yourself before considering one for your child. This is the more responsible way to provide coverage for your family, and many insurance companies will not let you purchase one for your child without having one for yourself first.
To determine whether buying whole life insurance for your child is a good idea or not it is best to speak to an advisor with years of experience. Sim Gakhar has the insight and knowledge necessary to assist in your insurance journey, and you can avoid the inner battle by contacting them for advice today.
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