Life Insurance for Children is Essential

The future can be bright for all our children financially

I think we can all agree that our children are the future. Having children myself, I know I want to provide for them as much as I can. They should have things that I never had as a child. I want my kids to be set up for success in the future. That is why it is essential to purchase a life insurance policy for your child or children. The benefits of doing so are astronomical and will help shape their future.

What kind of policy is available for my child?

Just about every policy you can purchase for an adult is available for a child. The primary policy you will want to look at is a permanent policy, such as a whole life or a universal policy. With permanent policies, the premium is locked in for life, cash value is generated over the years, and your child will never have to worry about getting life insurance later.

A policy can be purchased from age 0 and up. The parent or guardian acts as the owner of the policy until the child takes over the policy. This typically happens from ages 18-21. Then, that person can choose to keep, cancel, or even add to the policy.

Whole life versus universal policies

Both policy types will last for the life of the insured. The primary difference between the two is how the money is invested. With whole life policies, a set amount or dividends are put into your account’s cash value during a specific time frame. Your insurance broker or agent should provide an illustration that shows how much money your account will accumulate each year.

Universal policies are essentially the same. The biggest difference is that your monthly premium is invested into a stock index that is set up during the application process with the agent or broker. There are different types of universal policies with different carriers. Insurance carriers provide numerous stock indexes you can choose to invest in. Each stock index will have different cap rates and guaranteed returns.

The biggest benefit is you will never lose any of your investment, because life insurance products are protected from negative returns. Also, you can pay more than your normal premium which will help you generate more cash value.

The value of the policy

The most valuable part of having a permanent policy early in life is the building of cash value each year. Every permanent policy will generate cash value; some do it differently than others. If you purchase a policy when a child is age 0, there will be 18-21 years of cash value generated before they take over the policy.

Cash value is essential because it can be used to pay for many things. It can be used to help pay tuition for college, pay for a down payment on a home or pay for a car. If you have the desire for your child to attend college then this is a for sure way to help pay for it. You can use the cash value to pay for anything you desire because it belongs to you.

You do not have to do an extensive application to borrow the money. Even after taking out a loan against your policy, you will still be gathering cash value as if it was still there. You can choose to pay it back when you want, or it will be taken out of the death benefit once you pass away. Each carrier has different policies pertaining to this.

The premium that you pay for a child’s policy is locked in forever, as long as premiums are paid when they are due. The policy’s premium will not go up. You can choose to pay more if you wish in a universal policy. Having the premiums remain super low each month is a huge plus. That means it will be very affordable and that person will be more likely to keep the policy.

A parent with a newborn can pay only $15.43 a month for a whole life policy with a death benefit of $40,000. Let’s say that the newborn is now an adult and, at the age of 50, decided to purchase a policy. He would have to pay $113.10 a month for the same death benefit. This is all assuming he is very healthy and not a tobacco user.

There is also the fact of guaranteed insurability. This means that if the child wants to purchase additional insurance or convert their policy later, they can do so easily. They are guaranteed the ability to do so without additional underwriting. This is very beneficial because the child might experience numerous health issues as they grow older.

Lastly, and the most apparent benefit, is you will have the money to pay for final expenses. No one expects their child to pass away but it does happen. It is always better to be prepared for the worse case and be ready versus being prepared and nothing happening.