In a CNNMoney Ask the Expert column this week, Sarah Max asked the question, “Should I buy life insurance for my child?” Sarah included expert opinions on the value of insuring a child against premature death versus utilizing those premium dollars to build a college fund instead. The consensus was to invest the money and forego the life insurance. But the primary discussion was around whole life insurance, which is where the story falls short.
As Sarah and the experts point out, whole life insurance builds cash value and can be used to guaranty a person’s insurability should she become seriously injured or develops an illness later in life. But those features come at a steep cost in the form of fees and other charges, which can slow the cash value growth and delay the return on your investment for decades.
Thankfully, there’s a better way — which we’ll get to shortly. But first, here’s why you should buy life insurance for your children to begin with.
The National Funeral Directors Association estimates the cost of an average funeral in 2013 was approximately $7,400. And that’s for ‘basic’ services and materials such as a metal casket.
Finding $7,400+ for an unexpected funeral is likely to be difficult for many people. It would create a sizable dent even for those with a sufficient emergency fund. A life insurance policy can help if you could not afford to provide a proper burial for your child.
Time to Grieve
This is the primary reason I believe in life insurance for children. I can not imagine the grief I would experience if one of my children were to die. And returning to work would be the furthest thing from my mind. How long would it take before you could effectively return to work? A week? A month? Longer?
Would your employer, customers or clients give you the time you need to grieve? If so, at what cost? A life insurance policy on your children can offset the loss of income you would experience from an extended time away.
Family Help & Counseling
Even after the initial grief wanes, you and your family will likely want to seek counseling to help get through this difficult time. Sadly, not all health insurance policies provide adequate mental health benefits. It’s possible you will need to pay out-of-pocket for any ongoing counseling or therapy you or your loved one require. Life insurance policy proceeds can help cover the cost of such services.
A Children’s Term Life Insurance Rider is the Answer
Genworth Life Insurance Company is one of the very few life insurance companies that offers term life insurance policies for children. Most companies offer policies beginning at age 18. But you can purchase term life insurance on your children in the form of a rider on your own policy from almost any company. A rider is simply additional coverage added to a policy to insure something other than the primary insured’s life. As an example, imagine adding a jewelry rider to a homeowner’s policy to insure expensive items beyond what the base policy provides. It’s the same concept with a children’s term rider.
These riders vary slightly by company, but they provide similar coverage at comparable costs. Here’s how ING ReliaStar Life’s child term rider works.
- Coverage Amount – $2,000 to $10,000
- Cost – $12.00 to $60.00 annually
- Cost covers all children regardless of the number
- Age Coverage Begins – 15 days
- Age Coverage Ends – 25 years
- Conversion to an individual permanent policy is available
The primary differences you’ll find are in cost and coverage amount. For example, some companies offer child term riders up to $25,000. Another key point to note is that one rider will cover all children in the family. So a $60.00 child term rider would provide $10,000 coverage for each child, whether you have one or ten. Many riders will extend coverage to stepchildren and adopted children of the insured as well.
Term life insurance provides the best value in life insurance protection. Adding a children’s term life rider can add more even value and help you achieve a more well-rounded approach to protecting your loved ones.