For financial experts, this is a doozie of a question – there’s two different schools of thought and it tends to be a heated debate. While there are good points on each side, it’s good to know that child-size life insurance policies are wildly unpopular; according to the American Council of Life Insurers, only about 15% of all persons under the age of 18 have life insurance policies taken out in their name – a stat that hasn’t budged in over a decade.
Deciding which side to fall on – the pro or the con – depends on the situation. Why do you need to take out a life insurance policy for your child? The entire purpose of a life insurance policy is to replace income lost when the main income provider for any family passes away – children are never the main income providers.
Of course, there are situations that might steer a parent towards life insurance as a possible solution to quite a few, rare, problems or possible future problems. Let’s examine the arguments.
PRO CHILD LIFE INSURANCE
What are some of the rare situations where it might not be a bad idea for a parent to consider taking out a life insurance policy on their child?
When the Child is Terminally Ill
This is an unfortunate situation that is filled with hard choices – ones no parent should have to make and that are especially difficult to make during this time. The argument here is that grieving parents will often, in fact, experience a loss of income after the death of a child, but still need to make ends meet, or care for their other children. In this case, a small life insurance policy taken out on a child that may pass on at an early age could help offset that financial loss due to parents taking time off from work to grieve.
When a Life-Long Disability May Prevent Future Coverage
When a child picks up what will, or could be, a life-long disability at an early age, it automatically sets them up for future hardship with obtaining life insurance. Instead of letting the medical history build and letting the child handle obtaining that coverage after all of that, parents will consider taking out a whole life insurance policy on their child that can be transferred to their care when they come of age. Essentially, it’s a way to make sure they get some kind of coverage when they can and there happens to be quite a few programs offered by insurance companies for this very purpose that remain affordable throughout a child’s life.
ANTI CHILD LIFE INSURANCE
What is the real purpose of child life insurance? Are there better alternatives than to essentially “abuse” the system and the very reason why life insurance exists?
There are Simply Better Investments
Here stands the main argument against child life insurance – there are better investments to be had. It’s not that the opposition doesn’t think grieving parents should have some kind of financial padding when a child passes away, or that a disabled child shouldn’t be set up for things they may not be able to obtain on their own down the line – after all, financial experts are all about planning ahead.
The opposition merely believes that a strategic investment in a 529, or some other financial strategy, will render better results, accrue interest that life insurance policies don’t or not much of, and can ultimately provide more for a family or for an adult child.
It’s an Abuse of the System
As mentioned, life insurance exists to replace lost income for a family that has lost their main income provider – this is essentially the definition of life insurance in its most black and white interpretation. Those that oppose child life insurance stand by this definition as their reasoning and it folds into the previously mentioned first argument.
Children don’t have dependents and they don’t provide income – therefore, they shouldn’t have life insurance policies.
WHICH ARGUMENT IS THE RIGHT ONE?
It’s still up for debate – even long-term financial experts can’t come to an agreement. As you can see, there’s valid arguments on both sides and really it ultimately depends on what your situation is. No two situations are exactly alike, so there simply can’t be a cut and dry answer – which is why, there still isn’t one.
What are your thoughts on this sensitive subject?
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