Let me start by saying that within a month of our son’s birth I had a permanent life insurance policy put in place. The last thing in the world I want to happen is to make a claim on those policies, in fact I am 100% certain I will not. So why did I do it? Here are three reasons why this is one of the best ways to set up your child for the distant future and why they will thank you for it later.
1. It’s extremely affordable.
It’s so affordable that both policies will be completely paid off in 20 years. For the price of eating out once a month at a lower cost restaurant, my wife and I can provide this coverage to our son. That means that once he reaches his 20s he will have free and clear life insurance coverage that he doesn’t have to worry about paying. Obtaining coverage at that age will cost more and be on their dime.
2. It generates a cash value.
Whole Life, and various forms of Universal Life, generate and build a cash value. For my son’s policy, I will contribute over a 20-year period. Assuming he lets that amount sit, by retirement age (age 65) his cash value and death benefit will grow significantly. The cash value can be used for income in retirement. Thanks Dad! As a side note, life insurance on a child is the best way to fund higher education expenses.
3. We don’t know what the future holds.
Although I said I am 100% certain that I will not have to make a claim on the policies, that isn’t reality. Should the worst happen, we will be prepared. In his younger years, we will be able to cover his final expenses and use whatever is left to donate to a local charity in his name. Does he have college loans? Chances are we helped him sign for those, so we are on the hook now. What if a health issue crops up in his teenage years or later and is unable to obtain life insurance? Whatever may happen, we are prepared for the best and the worst.
Does a child NEED life insurance? Statistically speaking, probably not. However, as a Financial Advisor that focuses on all areas of planning I highly recommend looking into obtaining some type of coverage on your child or children. The costs are low, and the future benefits are too great to ignore. I also recommend that parents don’t just rely on the life insurance provided ‘through work’ and make sure they have adequate coverage, but that is a topic for another day.