Dec 19th, 2013 by Jennifer Lynn
Of course, children have deep sentimental value to their parents and other loved ones. Their bright smiles, zany antics and boundless energy help endear them to practically everyone they meet, at least for a while. Nevertheless, the fact remains that since the decline of farms and the establishment of child labor laws, the earning potential of children has fallen nearly to zero. Most parents can tell you that children are poor investment tools as they cost much more than they could ever bring in, but not as many are sure if life insurance for children is a sound investment.
The answer under the typical circumstances is probably not. The primary purpose of life insurance is to replace the income lost by a departed member of a household, so unless you are the proud parent of a child actor or teenage pop star, life insurance is usually extraneous. Check out this link to find out about purchasing your own life insurance policy.
The secondary function, providing for funeral and burial costs, is also less than essential, as an overwhelming majority of children in developed countries are born in good health and live a fairly long time. In the unfortunate event that this is not the case, the financial reality is that household expenses actually decrease considerably, often leaving the family with adequate funds to cover final expenses.
There is some limited benefit to purchasing a life insurance policy for your child. An established policy as a child is guaranteed into adulthood, no matter what health issues may later arise. This makes it a good choice for families with a dubious medical history.
This kind of policy is also insulated against your child’s eventual life choices, so as an adult he or she can fly a helicopter, BASE jump or even smoke cigarettes without endangering the policy, a revelation which surely arrives as bittersweet relief for many parents. Many such policies even help generate money for college education, but the benefit of the arrangement pales in comparison to a dedicated college savings account such as a 529, so this benefit is far from a solely determining factor in the decision to purchase life insurance for your child.
In the case of the unthinkable, life insurance for a child can be a helpful thing to have. An insurance policy payout can provide family members with time away from work while they work through the tragedy as well as counseling to help them come to terms with the loss. Some policies will even reimburse the family for educational costs such as student loans. In any event, the likelihood of having to rely on a policy for either purpose simply does not justify the expense for most considering a policy.
Shrewd financial minds can find added advantages in a life insurance policy. Many policies allow policyholders to borrow money from the cash value of the policy up to the amount paid in premiums tax-free for an emergency source of cash. These investment policies can accrue compound interest for the child’s entire life and have guaranteed cash value that is shielded against the fluctuations of the market, ensuring that a child so insured is not completely without worth.
A life insurance policy can also be controlled by the parents until the rights are transferred to the child, meaning that your freshly minted 18 year old can’t cash in the policy for a Mustang until you allow them to.
Acquiring a life insurance policy for your child is usually a well-intentioned effort, but largely unnecessary. For most children, the potential positive aspects of having a life insurance policy are severely outweighed by the investment necessary, and in many cases the resources can be used much more effectively. However, there are scenarios in which they can be useful, and they can also make an effective financial tool for an astute investor. If you are among the minority that find such a policy a suitable option, carefully compare providers and prices before making a decision in order to get the best possible deal for your individual situation and goals.