Should I buy Life Insurance for my Daughter?
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UPDATED: Nov 17, 2011
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Although life insurance for children makes up a relatively small portion of life insurance policies sold each year, many people struggle with the decision whether or not to insure their children. Advertising campaigns and social pressures can contribute to a parent’s anxiety about insurance. When determining whether to buy life insurance for your daughter, you should take the time to review the information about policies and make an informed decision that meets the needs of your family rather than allowing advertising to prey upon your emotions.
Generally, the purpose of life insurance is to provide financial security to loved ones in the event of the policyholder’s death. Life insurance benefits can be used to cover funeral expenses, pay off debts, or cover the lingering costs of medical care; in some cases, policies also provide enough money for surviving family members to live off of for several years following the death of the insured.
Life Insurance for Children
Term life insurance is relatively rare for children. Under term life insurance, the policy lasts for a specific period where if the insured survives past the term of the policy, no benefits are paid and the policy must be renewed. The other type of insurance policy is a whole life insurance policy, which provides death benefits but also includes an investment account with cash value. With a whole life policy, you are able to invest money from each monthly premium into an interest-bearing account; you can then use this account as collateral for a loan, or withdraw money to cover living expenses. Whole life policies last indefinitely as long as payments are made into them. Most insurance policies offered for children are whole life policies, marketed as an attractive option to parents who are looking for a way to save for the child’s future.
When it comes to the discussion of whether life insurance for children is a good investment or a waste of money, opinions are divided into two main arguments.
The Argument for Life Insurance for Children
Many parents do not want to consider their child’s mortality, and thus do not save for the possibility of accident or disease necessitating funeral costs. Many parents may also suffer a severe financial setback after paying medical expenses for injury or illness; because medical expenses persist even after the patient’s death, life insurance can help to cover these bills if the parent is unable to afford it out of pocket.
Whole life insurance policies also provide a way to invest money in the child’s future while providing benefits in the event of the her untimely death. Money gathered in the savings account can be used toward medical expenses, education funds, or daily living expenses for the child while she grows up.
Additionally, some children may have a genetic predisposition to health concerns that will make them difficult to insure later in life. If a child has a high likelihood of becoming diabetic or has a reduced immune system, it may be wise to lock her in to a universal life policy early, so that she doesn’t run the risk of being denied for insurance as an adult when her own children will be financially dependent on her income.
The Argument Against Life Insurance for Children
Because life insurance primarily works as an income replacement, many argue that insuring children makes no sense. Children, as financial dependents, do not have any income; their death would not place any particular financial strain on surviving family members. Indeed, many would argue that life insurance is unnecessary for bachelors or other people with no dependents.
If you’re considering a whole life policy for your daughter as part of an investment for her future, you may be better off investing the money in an annuity or other secure investment. Whole life policies are substantially more expensive then term policies, and investing in whole life early on guarantees that a substantial amount of premiums will be collected by the company throughout your child’s life. Since a portion of the premium goes toward paying the fees of the insurance company, you will ultimately lose money by investing in whole life insurance.
Additionally, many life insurance carriers specialize in providing policies to high-risk customers. It’s nearly impossible for a person under 80 to be denied life insurance, although high-risk policies will tend to be more expensive than regular policies. Nevertheless, if the only reason you’re considering purchasing life insurance for child is her probability of health conditions later in life, you may not need to make this investment.
Should I Buy Life Insurance for my Daughter?
Ultimately, the decision of whether to insure your child is dependent on your own family’s needs. For some people, life insurance is a wise investment; for others, money spent on insurance could be better invested elsewhere. By reviewing your options, you can make the best possible decision for your child’s future and your family’s financial needs.
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