Parents want to do all they can to protect their kids, and child life insurance can help them achieve this goal
Key Takeaways:
- The child life insurance market is experiencing massive growth.
- These policies make it easier for children to carry coverage into adulthood.
- Future coverage is significantly less expensive when rates are locked in during childhood.
- The cash value element of child insurance plans can be used in a variety of ways, including potentially generating future income.
Many Americans don’t consider life insurance for several reasons, ranging from expense concerns to worrying they’re too late to get coverage. But two groups that typically overcome these hurdles are parents and guardians. They know that should anything happen to them, the minors they’re responsible for could be left in a dire financial situation.
They’re thus far more likely to have life insurance in place to provide their dependents a cushion if they pass. This is a commendable step, but it’s possible to give minors even more security later in life by taking out child life insurance.
This guide explains how these policies work and their multiple benefits.
The increasingly positive attitude toward child life insurance
Nobody likes to consider their mortality, and parents certainly don’t want to think of their children passing. Thus, life insurance for minors has typically suffered from that distressing association. In addition, parents and guardians may be dissuaded from child life insurance due to viewpoints like:
- A child has no dependents, so why bother?
- My adult life insurance will be enough for them.
- A minor earns little to no income, so there are no real finances to replace.
But it’s wise for parents and guardians to remember that life coverage for children is essentially about providing them with an easier and more financially stable future. And more adults are coming to this conclusion, driving growth in a market worth $36.1 billion in 2018 but headed for $117.7 billion by 2025.
The reasons to invest in life insurance for children
Let’s get the hardest benefits out of the way. While it’s rare for parents to lose a child, this situation can get very costly when it happens. Most Americans have less than $1,000 in savings to cover an unexpected cost, and final expenses can total much more than that. New York, for example, has the third-highest average funeral costs at $10,799. Then there’s the possibility that grieving adults will have to take time away from work, which, with little or no savings, only compounds the monetary strain.
Now, onto the brighter side. Child life insurance is typically easier and cheaper to obtain than adult coverage because minors tend to be in far better health. And the greater the period of the child’s life covered by the policy — an 80-year plan as opposed to a 70-year one, for example — the cheaper monthly premiums will be.
Locking in rates as early as possible thus creates coverage that’s far less expensive than taking it out later in life. It also sidesteps the stress many adults face when advancing age or declining health makes it difficult to find adequate policy protection. Even a healthy adult with a high-risk hobby could be seen as an insurance liability and saddled with higher premiums, which is another limitation overcome by starting with and keeping a child life plan.
Child life insurance as cash and an investment
The comparatively lower cost of child life plans allows these policies to build greater cash value over time. They’re also versatile enough to allow for several different financial frameworks. Some policy types enable the dividends to be transferred to a bank account for easy access, while others allow the cash value to fund the policy itself. In the latter case, however much remains of the cash value will continue to gather dividends.
Other cash-value options include transferring the sum into an annuity or using it to fund an investment, both of which deliver further potential routes to future financial security for the child. Parents and their children should be careful about utilizing the cash-value sum, however, because accessing it reduces the plan’s death benefit and could lead to a tax bill. Always seek professional financial advice before using insurance plans in any of the above ways.
The different forms of life insurance for children
Parents have three main choices when establishing a child life policy. First, there are standalone whole-life policies that last as long as the premiums are paid, giving a lifetime’s worth of coverage. In addition, a minor who reaches adulthood (an age which can vary between insurers) and wishes to continue the policy can do so while enjoying guaranteed premium rates that won’t increase as they age.
Term policies are another standalone plan that can be set to cover a child for a specified period (5, 10, or 15 years, etc.). This coverage can also be taken on by the child when they reach adulthood like whole life policies, with one important difference. Term plans carry the future possibility of a rate reassessment based on present health at the time of a transfer, which could mean higher premiums.
The third option is adding a child “rider” to an existing adult life insurance policy by purchasing coverage in units. This is another form of term life and will raise the primary policy’s premiums. However, it covers all existing and future kids in the household. The child or children could then convert the rider into permanent coverage when they reach an assigned age, and they may even avoid underwriting in the process.
Contact the insurance experts with any questions
Child life insurance has many potential benefits, but this doesn’t mean it’s the right investment for every family. That’s why NICRIS takes the time to assess your present circumstances and future goals to find the best coverage for you and your loved ones. Get an instant quote, book a free, personalized insurance review, or contact us with any life insurance questions.