Purchasing a life insurance policy is standard practice for many people, particularly if you are a working parent with dependents. While the idea of life insurance for children isn’t new, it’s something many of us haven’t considered when planning for the future and assessing our financial plans. But not everyone is insured against the unexpected. If life insurance for a child sounds like a crazy idea, you may be among the 30% of American households who are uninsured according to LIMRA’s 2016 Trends in Life Insurance Ownership study. At 30%, they say “more than 37 million American families are completely uninsured and at financial risk if their primary wage earner dies unexpectedly.” That’s a frightening statistic that can be improved with some education and awareness. Let’s examine why you need life insurance for yourself and the benefits of life insurance for your child.
Life Insurance Will Help Your Loved Ones
Life is not predictable, and regardless of how healthy, stable or happy you are, life is going to throw you some curveballs. Life insurance gives you a feeling of security knowing that if something happened to you, your loved ones would be taken care of. It’s an investment that respects the unpredictability of life. Grieving is hard enough without facing losing a home or other financial devastations. Life insurance is not a question of whether you can afford it, but rather why you can’t afford not to have it.
What Are the Numbers?
The LIMRA 2016 study shows Millennials are becoming savvier about life insurance. The study stated that “The top three reasons Millennials own life insurance is to pay for final expenses (funeral, burial, etc.): 49 percent; to replace income: 35 percent; and to pay off their mortgage: 22 percent. These statistics align with the general population.” But other segments of the population are entirely uninsured. For example, LIMRA also noted that a fifth of families with minor-aged children do not have insurance. That translates into millions of American families who would seriously struggle if the primary bread-winner were to die. You can read more about the details of the study here.
Is It Lack of Awareness or Other Financial Priorities?
You may think that you have more pressing financial priorities than purchasing a life insurance policy for yourself or your child, but the fact is, those priorities will be irrelevant if something happens to you and you are uninsured. The study found that people reported their inability to afford life insurance was their reason for not having it. But researchers found that these consumers were overestimating the price of insurance by up to 300%. The study found a lack of education or misunderstandings regarding which and how much coverage they needed a big issue.
Children’s Life Insurance: To Buy or Not to Buy
There is a healthy debate within the insurance industry about the value of children’s life insurance. On the one hand, the argument stands that it is a way to ensure that your child can buy more life insurance at a later date, regardless of their health. Some also see it as a sort of savings plan. Others see no value in purchasing a life insurance policy for a child because the likelihood of a child dying is statistically low. Everyone agrees that your first priority as a consumer should be purchasing your own life insurance policy and making sure you have a healthy savings account and emergency fund.
So How Does It Work?
There are generally two ways you can purchase life insurance for a child.
- When you buy a term life insurance policy that covers yourself or your spouse, you can add what’s called a rider, which extends your policy by a small amount to cover other family members such as children. You pay extra for the rider because it’s an additional policy feature. Term life policies don’t exist for minors, so this is the only way you can insure your child. Term life insurance covers the policyholder over a fixed period and pays out to the beneficiary in the event of your death.
- The more expensive option is a permanent life insurance policy. This type of plan covers a person for their whole life and includes a savings account that will gain value over time. The premiums on these plans are significantly more expensive.
Now I’m Aware, But Why Should I Buy?
There are many reasons you should buy insurance for your child. Here are a few to remember:
- In the tragic event of your child dying, many of the costs associated with grieving–funeral, medical expenses, work absence–are covered by the policy.
- In the unfortunate case of developing a childhood illness, your child may have difficulty getting coverage later and a children’s policy safeguards against that.
- A children’s policy can act as savings in the case of a permanent life insurance policy and can be borrowed against the cash value or even traded in.
Looking at All the Angles
Any conversation about life insurance should start by considering the coverage you have as the adult and earner. Your family is going to be most negatively affected if the person who generates the household income dies suddenly and without a life insurance policy. Ask yourself the hard questions:
- Am I saving enough?
- If I lost my job, do I have emergency savings?
- What is the value of my assets?
Ready to Talk About Your Life Insurance Needs?
Whether you’re one of the households across America who is insured or one of the ones who want to be, insurance companies are ready to talk to you. Education and awareness are the essential steps to helping you feel secure in the knowledge that life insurance will help your loved ones. Building the additional bridge of insuring your child is the next step for your financial peace of mind. At Smallwood Insurance, our agents are ready to talk about life insurance for your child and what your options look like. Contact us today for a quote.