Financial experts tend to agree that life insurance is an important part of protecting those you love if the worst should happen. If you have children, you and your co-parent will likely want to carry life insurance so your kids aren’t in dire straits from lost income and burial costs if something were to happen to you. (What is life insurance, exactly?)
But what about life insurance for your children? Opinions are strongly divided on this topic, split into two opposing camps:
Insurance professionals often advise carrying a small policy on children, citing the overwhelming grief and burial costs of losing a child.
Most financial advisors cite the infrequency of child deaths and argue money spent on a child’s life insurance policy is wasted.
Everybody’s situation is different, so there’s no one-size-fits-all answer. Instead, if you’re feeling pressure to consider a life insurance policy for your child, here are the details you need to make an educated decision.
The average cost of a funeral in the United States is $7,360, but it varies widely state by state. A funeral in Florida costs an average of $5,875, while the same service in Maine runs more than $8,675. This can be a serious obstacle for many families.
But in 2019, research by AARP found that less than 53% of U.S. households have any emergency savings. And research by JP Morgan Chase found that, among families with an emergency fund, middle-class households averaged just $2,000, while working-class households averaged $700.
Without emergency savings to draw on for funeral expenses, the cost ends up on credit cards. Consumer credit line costs can double or triple with interest fees by the time the last payment is made. That’s a considerable hardship on top of the loss of a child.
Insurance companies make money by placing bets on the likelihood a policy will be used. That includes identifying several classes of injury, illness, disability and other health-related factors and determining how much risk is associated with each.
Many child life insurance policies come with a clause of guaranteed insurability. That means if you get a policy for your child, they can choose to continue the policy and even expand the coverage when they become an adult—regardless of their medical status.
Courtney Rogers of Beaverton, Oregon has advised clients as an insurance agent for more than 10 years. Although he agrees child life insurance isn’t for everybody, he points out the value of this particular feature.
“These policies mean a child with any health issues, or a family history of health problems, can be insured as cheaply as an Olympic athlete, guaranteed, with opportunities to increase coverage as their personal responsibilities grow through life,” he says.
An old Zen parable tells the story of a king who sought advice from a sage about the secret to happiness. The sage answered, “Grandfather dies, father dies, son dies.” When the king demanded an explanation for such depressing advice, the sage simply answered, “Would you prefer it were in a different order?”
Losing a child is considered by many the deepest grief a human can endure. Some people become incapacitated by their loss and may be unable to work for weeks or even months. Others may go to work, but the grief can impact their focus, mood and productivity to the point where they could suffer income problems.
Being unable to work for multiple months could put most families in serious financial jeopardy. Life insurance helps to ease the financial blow.
A wide variety of alternatives to insurance exist for families who can afford to plan for the future. A few of the most common examples include:
Developing streams of passive income, such as a side business, to provide money when you’re unable to actively work
Saving the equivalent of a monthly life insurance premium in a savings account instead, so you have more money on hand if you need it
Calling on local charities to help with funerals for children who have passed
No single option provides all the protection and advantages of a life insurance policy, but the right combination might limit a family’s vulnerability without having to pay a premium.
In essence, the usefulness of a life insurance policy for a child depends on the likelihood of that child dying. That’s an extremely unlikely situation in the developed world. The National Institutes for Health statistics reports that children account for roughly 29% of the population but only 2% of deaths.
The U.S. death rate for children ages 1 to 18 is 0.66%. Those numbers include deaths of children born with serious medical problems or who develop early onset terminal illnesses. Children healthy enough to qualify for a child’s life policy have a death rate significantly lower than that.
This is the strongest argument against buying a life insurance policy for your child. You’re highly unlikely to need it, so it’s likely a waste of money.
In many cases, child life policies carry a variety of added features beyond guaranteed insurability that can make financial sense for some families. Examples include:
Locking in low rates early that will persist through the child’s entire life, regardless of health or other concerns
Policy value increasing (even doubling) on the child’s 18th birthday or another date when the child hits adulthood
Whole life policies that have increasing cash value each passing year, meaning a policy purchased in early childhood can accumulate far higher worth than one purchased as an adult
Various “double indemnity” and similar bonuses that increase the value and flexibility of the policy under defined circumstances
The specifics vary from policy to policy, and they may or may not fit your immediate needs. Read and understand the details of any child life insurance you’re considering, and ask your agent if a feature you need is included or can be purchased for additional cost.
There is no universal answer for every family. However, armed with the information above, you can ask yourself several useful questions:
Does your family have a large enough emergency fund to cover funeral expenses for a child? If not, do you have a plan in place to reduce the costs so you can afford it?
Do you or your co-parent have any family medical history that could preclude life insurance options for your child down the line?
Does your child have a medical condition that doesn’t disqualify them for insurance now but might in adulthood?
What is your employer’s bereavement leave policy?
Do you and your co-parent handle grief in ways that are likely to prevent going to work for more than a couple of weeks?
What independent income sources do you have that could mitigate lost wages during bereavement?
Are you comfortable with alternative financial solutions, and do you have the means to put them into place instead of life insurance for your kids?
How risk-averse are you? Would knowing you’re protected against a profound but incredibly unlikely hardship reduce your stress and increase your happiness?
It’s hard to think about the death of a child. But often, the difficult conversations and decisions are among the most important ones we face. We hope this information helps you have this conversation in the easiest and most useful way possible.
Fabric exists to help young families master their money. Our articles abide by strict editorial standards.
Fabric by Gerber Life exists to help young families master their money. Our articles abide by strict editorial standards.
Information provided is general and educational in nature and is not intended to be, and should not be construed as, financial, legal, or tax advice. Laws of a specific state or laws relevant to a particular situation may affect the applicability, accuracy, or completeness of this information. Federal and state laws and regulations are complex and are subject to change. We make no warranties with regard to the information or results obtained by its use, and disclaim any liability arising out of your use of, or reliance on, the information.
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