How much is a child's life worth? Of course, no parent wants to ask themselves that question, or even consider that something as serious as death could happen to their child. However, tragedies happen all the time, and the reality is that child life insurance can alleviate the pain and ordeal that a family would face in the worst case scenario.
In this article, you will learn about the different reasons to take out child life insurance and the options available. If you think that your children’s lives are the most valuable thing in the world, don't think twice: protect them with a child life insurance policy.
Child Life Insurance: Table of Contents
Child Life Insurance: What It Is and Why It Might Interest You
Children seem indestructible, filled with strength and life. However, they are as vulnerable as anyone, or even more so, as responsible parents are well aware. This is why child life insurance is requested and purchased with more and more frequency. In fact, LIMRA, an association of insurance companies, explains that 20% of American parents and grandparents have already taken out life coverage for their children or grandchildren.
These insurance policies are designed to insure the lives of children under 14 or 15 years old. After this age, it is better to obtain juvenile or student life insurance.
Actually, life insurance can be purchased from birth. In fact, some specialized insurance companies offer policies starting at two weeks old. Once underwritten, the child is covered and in case of death, his or her family members receive a payout or death benefit.
Child life insurance is different from the life insurance offered to adults. In general, it has lower payouts. It is also much cheaper and the qualification process is almost nonexistent. This is due to the fact that children represent a much lower risk: insurance companies give them policies without a problem because it is rare for a child to have health problems—they lead healthy lifestyles, do not practice risky activities, and their life expectancy is very high. Because of this, risks noticeably dissipate which makes for very low premiums. In addition, because payouts are not too high either, these policies end up being very accessible.
If you have small children, you may consider buying one of these policies. Of course, this is not about turning children into products or thinking about them as a possible source of income. On the contrary, it is about trusting that nothing will ever happen to them, but being prepared if the worst does happen by having a sum available to help the family overcome the blow.
The death benefit received by the policy beneficiaries can be used to finance funeral costs, which are always expensive, or to help the family take time to recover after the loss.
Hopefully, you will not have to mourn the death of a child. In this case, the insurance will accompany the child for the rest of his or her life. When they reach the age of legal majority, or begins to have their own income, they can go on to become the policy holder and manage it themselves.
Types of Child Life Insurance
Child life insurance does not offer many purchase options. In contrast to the many possibilities available to adults, children have two alternatives: parental term insurance or traditional permanent insurance.
- Term insurance. Fixed period, or term, insurance, has a set duration: 5, 10, 15, 20, or 30 years. When the policy is no longer effective, it expires and is no longer valid. If the insured dies during the years when the insurance is in effect, his beneficiaries will receive the payout. These are cheap policies because insurers assume fewer risks, and they have one main downside: payment of the death benefit only happens if the insured dies during the years when the insurance is valid.
In order to insure a child with this type of insurance, a child rider must be incorporated. A parent adds a rider to the policy and the child is included on the insurance for only a few extra dollars a month. This way, the child will have term insurance until the policy has expired.
- Permanent insurance. Permanent insurance is the classic option: the policy is in effect throughout the lifetime of the insured and the payout is made when the holder dies. There are several types of such policies: traditional or whole, universal, variable and variable universal life insurance. Of these four options, only whole or traditional life insurance can be used to insure a child. This form is simpler: the insured does not have to do anything but keep paying premiums, which, in the case of children, are paid by parents or guardians.
In addition, the savings generated by permanent life insurance must be taken into account. This is because a good portion of the money from premiums is allocated toward investment in products with guaranteed profitability. This extra money accumulates because the premiums are level, or always the same, which means that the premiums from the first years of the life insurance are overpaid, when the assumed risk is low. In exchange, they level out in the final years of the policy, when the risk is very high. Savings is generated using this excess from the first stages of the insurance, which accumulates in the form of cash value. The interesting part about this cash value is that there comes a time when it is handed over to the insured, who can use it in any way they wish. In addition, it can be used to back loans against their future value.
In the case of permanent insurance for children, the most common practice is to use very low premiums and payouts. However, when the child is old enough to take responsibility for the insurance, parents can put the policy in their name. From that moment on, some companies automatically double the coverage. Premiums rise a little bit, but the policy already has a higher payout and capacity to generate added value.
Advantages of Child Life Insurance
As you can see, insuring a child’s life is a very serious decision that you should only make when you have all of the information you need at your disposal. The advantages of taking out child insurance are part of this consideration:
- Assuring eligibility. When insuring a child, you can avoid the qualification process, whereby the insurer evaluates the person who requests the insurance and decides whether or not to grant him or her the policy. When insuring a small child, insurers do not ask for medical tests or anything of the sort. This way, the child obtains the insurance without a problem and future qualification steps are avoided. This means that the child dodges the biggest obstacle to obtaining insurance. Even if the child contracts an illness or has a problem that could make their access to life insurance more difficult in the future, they will not have to undergo the qualification process.
- Low price. When taking out insurance for a child, premiums will be very low because the insurer assumes very low risk. Then, these premiums will stay low for the entire life cycle of the policy, which may be many decades.
- A lifetime gift. Child insurance is a gift that stays with the insured for his or her entire life. In addition to coverage in the event of death, he or she will have access to a savings tool that can help pay for their education, start a business, or in the very long run, have a more comfortable retirement. This is why many grandparents are giving life insurance to their grandchildren as gifts.
- Future savings. With permanent life insurance, a child can jumpstart their own savings for the future. They can help pay for their education with the added value, for example. However, it is better to have student life insurance for this purpose.
However, child life insurance also has disadvantages. Some experts think that children’s risk of dying is so low that it is not worth ensuring them. They believe that this money can be invested in another, more profitable product, or saved to strengthen the family’s financial situation against any kind of contingency. There are also those who think that it is not necessary to protect children’s future eligibility because it is unlikely for them to be diagnosed with medical conditions during childhood or the adolescent years that would prevent them from being insured in the future.
All things considered, the possibilities offered by child life insurance are attractive. If you are thinking of purchasing such a policy, carefully review all of the information we have given you and also contact an insurance agent to offer you more details and provide a quote. Then, choose the option that seems most convincing to you and will better protect your family.