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Should I buy Life Insurance for my children?

The decision of whether or not to buy life insurance for children is a point of contention for many people. Excellent arguments exist on either side of the debate, and no one answer applies to everyone’s family situation. Depending upon your specific needs and the needs of your family, life insurance may be a wise investment. By doing your research well in advance of purchasing a policy, you can be sure to get the best value for your needs.

The Argument for Insuring Children

The first major argument for why children should be insured is as a form of life savings account with added insurance benefits. If you purchase a whole life policy for your child, the money paid toward premiums will accrue interest and eventually work toward paying off the cost of the policy, allowing your child to be fully “paid up” relatively early in his or her life.

Because whole life policies have a cash value, it’s also possible to take out loans against the policy, or to withdraw cash from the account associated with it. These savings can be used to pay off medical expenses, start an education fund, or otherwise pay towards the care of your child.

Another valid reason to purchase life insurance for your child is as a form of risk management. If your child is prone to any rare or genetic disease that would damage his insurability later in life, you can lock him into a policy while he’s young and healthy. Children at risk of diabetes, thyroid disorders, poor immune systems, or other issues may have a hard time receiving insurance as adults when those disorders have time to develop.

For some people, the primary purpose of purchasing life insurance for your child is to cover funeral expenses in the event of untimely death during childhood. For that purpose, a small-benefit, inexpensive term policy will suffice. Once the child grows and the term expires, she can pursue another policy suited to her own adult needs.

Obviously, if you intend to use your child’s life insurance as a form of life savings, you will need to purchase a whole life policy. Similarly, if you intend to purchase insurance in order to lock in coverage for your child early in her life, you must purchase a whole life policy as term insurance will expire and leave the child vulnerable.

The Argument Against Insuring Children

People who argue against purchasing life insurance policies for children believe that the primary purpose of life insurance is to serve as an income replacement; because children have neither incomes nor dependents, life insurance is a waste. Indeed, some would argue that bachelors also have no need for life insurance, either. The majority of life insurance policies targeted at children are whole life policies; since whole life is substantially more expensive than term life, you will potentially pay a lot of money to insure your child.

Statistically, children will almost always survive their parents; in the event of premature death during childhood, the financial setback is usually relatively minor. Additionally, the risk of being impossible to insure as an adult is fairly rare, even if the child does develop a health concern later in life. Many high-risk insurance policies exist for precisely that reason.

If you want to purchase life insurance for your child as a form of life savings account, you may benefit more from a different investment such as an annuity. These accounts are more secure that life insurance and will ultimately allow you to save and invest significantly

So, should you buy life insurance for your children?

People who purchase life insurance policies for their children believe they are making a wise investment toward the child’s future. Those who decide against purchasing a life insurance policy believe that those funds would be better invested elsewhere, as the primary function of life insurance is not applicable to young people. Neither side is wrong, but the unique motivations of each half of the debate should be carefully considered and applied to your situation.

Ultimately, the decision as to whether it’s worthwhile to purchase an insurance policy on your child is yours to make. The best course of action is to review the information available and determine, based upon your unique situation, what’s best for you and your child. If you do decide to purchase a life insurance policy for your child, be sure to review the policy information thoroughly so that you understand exactly what you’re paying for. If possible, take the time to discuss the option in detail with your insurance provider so that they can guide you toward the best possible choice.

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